By Craig Bowles
Caterpillar Company (NYSE:CAT) is slated to report 2Q 2014 earnings before the opening bell on Thursday, July 24th. The earnings release is expected at approximately 7:30 a.m. EST with an 11:00 a.m. conference call webcast available through Caterpillar Investor Relations. The company is a component of the Dow Industrial Average and S&P 500 Index. Late in the business cycle, the size and cyclical nature of the company increases in importance to the overall market and as an economic indicator.
Outliers & Strategy
- Earnings Per Share: Caterpillar typically reports a "clean" figure but will provide an adjusted number if needed that compares with consensus estimates. The current Street estimate is $1.52 (range $1.35 to $1.61). (Source: Yahoo! Finance).
- Revenues: Analysts expect a decline of 1.2% y/y to $14.45 bln (range $13.73 bln to $14.93 bln).
- Adjusted Earnings Per Share Guidance (FY2014): Current guidance is $6.10. Analyst consensus is $6.22 (range $5.87 to $6.51).
- Earnings Per Share Guidance (FY2014): Current guidance is $5.55.
- Revenues Guidance (FY2014): Current guidance is $53.2 bln to $58.8 bln. Analyst consensus is $56.29 bln (range $55.44 bln to $57.25 bln).
- Caterpillar's P/E on trailing earnings is 18.7 compared to a five-year average of 20.2 and the industry's 14.3. The dividend yield is 2.3% compared to a five-year average of 2.2% and the industry's average of 2.1%, so there's some relative value.
- Insiders have sold 175,609 shares during the last three months and 549,430 shares over the last year. Caterpillar's 2007 $7.5 billion stock buyback program runs through December 31, 2015 but the company already approved another $10 billion to be available for stock repurchases through 2018, so this is more than doubling the rate of repurchases.
- Caterpillar is compared to other construction and mining equipment companies with quarterly results possibly impacting John Deere (OTC:DEER), Ingersoll-Rand (NYSE:IR), CNH Industrial (NYSE:CNHI), Joy Global (NYSE:JOY), Cummins Inc. (NYSE:CMI), & Terex Corp. (NYSE:TEX).
- Caterpillar shares have a 1-day average price change on earnings over the past eight quarters of 4.08%. Options are pricing in an implied move of 2.74% on earnings.
- 07/08: Caterpillar has initiated extensive cost-saving programs across its global businesses and will continue to benefit from additional restructuring actions in 2014 to optimize its cost structure and improve its operational efficiency, according to a post by Zack's Equity Research.
- 07/07: Barclays is optimistic about Caterpillar's second-quarter earnings despite machinery still in a mixed but improving macroeconomic environment. Both North American truck and North American energy markets continue to improve while global construction markets look supportive, according to a post on Barron's Blogs.
- 06/25: Caterpillar revenue decline over the last eight quarters begs the question, "Why do investors hang around?", according to Fool.com.
In 2014, Caterpillar's stock has moved back up from 2012/2013 support at $80.00 to the early 2011 and early 2012 highs close to $110. 2014 has shown continued strength, so has probably squeezed some traders playing for seasonal weakness after early strength. John Deere has remained more flat and even lagging, so a pickup in Deere could cause some rotation of money flows out of CAT. Recent balance of $108-$111 being at the top of a three-year range makes for an interesting trade in either direction. (Chart courtesy of StockCharts.com)
The company beat consensus by 30c and 37c the last two quarters, so the company needs to report closer to the high end of EPS estimates and at least $1.58 with revenue close to expectations. Guidance and current numbers both matter and the company will probably update revenue guidance at the very least.
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