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Strong Mining Demand to Steer Caterpillar's (CAT) Q2 Earnings

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Caterpillar Inc.’s CAT Resource Industries segment’s second-quarter 2021 results are likely to reflect improved revenue performance, courtesy of improving commodity prices. Higher metal prices and solid demand, particularly from China, have benefited miners in the quarter under review — a scenario that might have translated into higher order levels for Caterpillar’s mining equipment. This might show on Resource Industries segment’s performance, when the company reports second-quarter results on Jul 30.

Caterpillar’s Resource Industries segment caters to customers using machinery in mining, quarry and aggregates, heavy construction, waste and material handling applications. The segment accounts for around 20% of the company’s Machinery and Energy & Transportation (ME&T) sales. The segment’s sales amounted to $2.2 billion in the first quarter of 2021, reflecting year-over-year improvement of 6%. The upside was driven by higher sales volume on account of higher end-user demand for equipment and aftermarket parts and changes in dealer inventories. End-user demand was higher in mining, offset by lower end-user demand in heavy construction and quarry and aggregates. In the first quarter of 2020, dealers had decreased inventories as the pandemic crippled demand. Driven by overall higher sales volumes and favorable manufacturing costs, the segment reported operating profit of $328 million in the first quarter of 2021, which reflected year-over-year increase of 8%.

Metal prices have been gaining through the second quarter fueled by strong demand amid concerns of supply. Iron ore prices particularly had a solid run riding on strong demand from China amid supply concerns. Fueled by pickup in global industrial activity, copper and silver prices have been gaining. Zinc prices have gone up in the second quarter owing to high demand from the steel sector. Nickel prices have surged on strong demand from stainless steel mills and electric vehicle battery makers amid tight supply.

The rally in commodity prices and the miners’ efforts to improve operating efficiency buoyed their earnings performance. Per the Federal Reserve, for the second quarter, total industrial production rose at an annual rate of 5.5%. The index for mining expanded at an annual rate of 25.6% in the second quarter. Miners have now resumed capital spending and are now focusing more on advanced technology and automation that will drive efficiency gains to remain competitive. This, is turn, might have benefited the Resource Industries segment’s top-line performance in the quarter to be reported.

The Zacks Consensus Estimate Resource Industries segment’s second-quarter external sales is pegged at $2,189 million, indicating growth of 28% from the year-ago quarter. The consensus mark for the segment’s operating profit stands at $326 million, indicating a surge of 114% from the prior-year quarter. Stronger sales and leverage on higher volumes might have contributed to the margin expansion.

Estimates for Caterpillar’s Q2

The Zacks Consensus Estimate for Caterpillar’s second-quarter total sales is pegged at $12.4 billion, suggesting growth of 24.2% from the prior-year quarter. The consensus mark for earnings per share currently stands at $2.38, indicating an improvement of 131% from the last year. The quarterly results are likely to reflect higher demand at its Resource Industries segment as well as other segments. This will help offset the impact of inflated input costs experienced through the quarter. Click here to know how the company’s overall Q2 performance is expected to be.

Caterpillar currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Q2 Revenue Expectations for Peers

Terex Corporation TEX, which provides aerial work platforms, materials processing machinery and cranes, is expected to witness year-over-year growth of 44% in revenues to $993 million in second-quarter 2021.

The Zacks Consensus Estimate for second-quarter 2021 revenues for Hitachi Construction Machinery Co., Ltd. HTCMY is currently pegged at $1.71 billion, projecting year-over-year growth of 8.3%. Hitachi Construction engages in the manufacture, sale, rental, and service of construction and mining machinery, environmental related products, and other machines and devices worldwide.

The Zacks Consensus Estimate for second-quarter 2021 revenues for Komatsu Ltd KMTUY, which manufactures and sells construction, mining and utility equipment; and forest and industrial machinery, stands at $5.79 billion, indicating year-over-year growth of 35.8%.

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Caterpillar Inc. (CAT) : Free Stock Analysis Report

Terex Corporation (TEX) : Free Stock Analysis Report

Komatsu Ltd. (KMTUY) : Free Stock Analysis Report

HITACHI CONSTR (HTCMY) : Free Stock Analysis Report

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