Caterpillar (NYSE:CAT) reported its results for the fourth quarter of 2018 this week. The company missed the analysts’ estimates by a wide margin, and thus, its stock slumped 10% on the day of the earnings release. As the stock has lost 18% in just four months, the big question is whether it has eventually become a bargain.
The reasons behind the slump
In its latest earnings report, Caterpillar missed the analysts' earnings per share estimates by a wide margin. The company reported adjusted earnings per share of $2.55 in the fourth quarter, much lower than the expected $2.98. Even worse, the adjusted earnings did not include the restructuring costs and some other non-recurring expenses, which were hefty. Including those costs, the actual earnings per share were much lower than the consensus ($1.78 vs. $2.85).
Before the latest report, Caterpillar had an exceptional performance streak, as it had exceeded the analysts’ estimates for 10 consecutive quarters. It had exhibited impressive growth in its business, which resulted in record earnings last year.
However, there was a pronounced deceleration in the growth rate in the fourth quarter. The company grew its revenue by 11% in the fourth quarter, much less than the 18% revenue growth it posted in the third quarter. Moreover, its earnings per share increased 18% in the fourth quarter over last year, much less than the 47% growth recorded in the third quarter.
The deceleration was prominent in all the major segments of the company, namely the Construction Industries, the Resource Industries and the Energy & Transportation segment. In the first segment, Caterpillar enjoyed strong demand in North America and in some Asian countries, but it faced lackluster demand in China. Due to the size of the economy of China and the fears over the impact of the trade war on this economy, any negative trend in China is
