Caterpillar Shares Up On Q3 Earnings Beat, Raised Guidance

Mining and equipment behemoth Caterpillar Inc. (CAT - Analyst Report) reported a 15% increase to $1.72 per share in its third-quarter adjusted earnings on the back of continued cost management and operational execution despite a muted mining environment.

Results trumped the Zacks Consensus Estimate of $1.33 for a positive earnings surprise of 29%. Caterpillar’s shares went up 4.65% in the pre-market trading session following the release.

Including restructuring costs, earnings stood at $1.63 in the quarter, up 12% from $1.45 in the prior-year quarter.


Revenues nudged up 1% year over year to $13.5 billion in the quarter, surpassing the Zacks Consensus Estimate of $13.4 billion. Sales in Energy & Transportation and Financial Products segments registered a year-over-year increase. Weaker results from the Resource Industries segment continued to be a deterring factor.

Sales volume decreased $187 million, affected by lower volume in Resource Industries and Construction Industries, partially offset by volume increase in Energy & Transportation.  However, favorable changes in price realization and currency along with increase in Financial Products' revenues helped offset the negative effect of sales volume decline.

Lower end-user demand for mining equipment continued to affect volumes in Resource Industries, as customers trimmed their capital expenditures. Aftermarket parts sales were slightly higher compared with the year-ago quarter.

Geographically, North America was the only saving grace where sales increased as against sales decline witnessed in the other regions. In North America, Caterpillar recorded a 15% increase in sales triggered by higher demand for oil and gas and transportation applications and construction equipment.

Latin America registered a 21% drop, mainly due to lower end-user demand. Sales in Asia/Pacific declined 7%, dragged down by lower mining construction and mining sales. Sales in Europe, Africa and Middle East (EAME) were about flat as favorable impact of changes in dealer inventories offset lower end user demand.

Costs & Operating Profit

Cost of sales declined 1% to $9.6 billion in the quarter due to favorable material costs. Gross profit increased 7% year over year to $3.92 billion in the quarter. Selling, general and administrative (SG&A) expenses increased 10% to $1.45 billion and research and development (R&D) expenses went up 14% to $533 million. Operating profit was $1.39 billion, down 1% year over year, as increased SG&A and R&D expenses resulting from higher incentive compensation expense were offset by favorable price realization.

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