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Caterpillar (CAT) to Report Q3 Earnings: What to Expect?

Caterpillar Inc. CAT is scheduled to report third-quarter 2021 results on Oct 28, before the opening bell.

Q2 Results & Surprise History

In the last reported quarter, Caterpillar’s top and bottom lines not only improved on a year-over-year basis but also beat the respective Zacks Consensus Estimate driven by high demand in end markets.

The mining and construction equipment behemoth beat earnings estimates in each of the trailing four quarters, the average surprise being 29.9%.

Caterpillar Inc. Price and EPS Surprise

Caterpillar Inc. price-eps-surprise | Caterpillar Inc. Quote

Q3 Estimates

The Zacks Consensus Estimate for third-quarter total sales is pegged at $12.6 billion, suggesting growth of 27.2% from the prior-year quarter. The consensus mark for earnings per share currently stands at $2.26, indicating an improvement of around 69% from the year-ago reported figure. The earnings estimate has gone down 0.4% over the past 30 days.

Factors to Note

The ongoing expansion in manufacturing activity this year has been reflecting on Caterpillar’s order book over the past few quarters. At the end of the second quarter of 2021, the company’s order backlog was $18.4 billion, reflecting an increase of $1.5 billion on a sequential basis and $5.5 billion on a year-over-year basis. For the third quarter, total industrial production rose at an annual rate of 4.3% — its fifth consecutive quarter with a gain of more than 4%. Manufacturing output increased at an annual rate of 5.3%. This might have translated into improved order levels over the course of the third quarter for Caterpillar. This along with a stronger backlog may have benefited Caterpillar’s third-quarter performance.

The company has implemented several actions to lower costs in the wake of the coronavirus crisis. Its restructuring actions are expected to result in savings of around $150 million this year. Part of this savings might have contributed to margins in the quarter to be reported. However, these abovementioned benefits might have been offset by higher SG&A expenses due to increased incentive compensation. Supply chain headwinds currently faced by the industry along with inflated costs for raw materials and freight services are likely to have weighed on the company’s margins in the quarter to be reported.

Segment Expectations

For the Machinery, Energy & Transportation segment, which generates around 90% of the company’s total revenues, the Zacks Consensus Estimate for third-quarter 2021 revenues is pegged at $12 billion, suggesting an improvement of 31% from the prior-year quarter.
 
The Zacks Consensus Estimate for the Resource Industries segment’s third-quarter external sales stands at $2,430 million, reflecting year-over-year growth of 43%. Through the quarter, prices for copper, aluminium, nickel, zinc and iron ore were higher on a year-over-year basis, while gold and silver were down. This might have translated into improved mining orders for the company. Improvement in heavy construction and quarry and aggregates, particularly in North America and the EAME, are also expected to have contributed to the to-be-reported quarter’s performance.

The consensus mark for the Construction segment’s third-quarter external sales is pegged at $5,491 million, indicating growth of 36% from the year-ago quarter. In North America, demand from both residential and non-residential construction is likely to have aided the segment’s performance in the quarter to be reported. Increased construction activity may have supported machine demand in EAME and Latin America as well.

For the Energy & Transportation segment, the consensus mark for external sales stands at $4,195 million, indicating growth of 21% from the prior-year reported figure.  Industrial is expected to have witnessed growth with activity strengthening across most applications. Improvement in power generation supported by data center activity, and rising sales in transportation courtesy of increase in rail services and international businesses may have contributed to sales in the third quarter.

For the to-be-reported quarter, the Zacks Consensus Estimate for operating profit for the Machinery, Energy & Transportation segment is pegged at $1,590 million, suggesting year over-year improvement of 72% from the prior-year quarter. The Resource Industries segment is expected to report an operating profit of $358 million, suggesting growth of 114% from the year-ago quarter.

The Zacks Consensus Estimate for the Energy & Transportation segment’s operating profit is pegged at $668 million, suggesting growth of 36% from the year-ago reported figure. The consensus mark for the Construction segment’s operating profit stands at $967 million, indicating growth of 65% from the prior-year quarter. Stronger sales and leverage on higher volumes might have contributed to the margin expansion.

What Our Model Unveils

Our proven model does not conclusively predict an earnings beat for Caterpillar this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates.

You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Earnings ESP: Caterpillar has an Earnings ESP of -5.05%.

Zacks Rank: It currently carries a Zacks Rank #3.

Price Performance

Image Source: Zacks Investment Research

Shares of the company have gained 28% in the past year, compared with the industry’s rally of 28.9%.

Stocks Poised to Beat Earnings Estimates

Here are some Industrial Products stocks, which you may consider as our model shows that these have the right combination of elements to post an earnings beat in their upcoming releases.

Reliance Steel & Aluminum Co RS has an Earnings ESP of +3.54% and a Zacks Rank of 1 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Columbus McKinnon Corporation CMCO has an Earnings ESP of +5.26% and a Zacks Rank #2, currently.

AGCO Corporation AGCO, currently a Zacks #2 Ranked stock, has an Earnings ESP of +0.77%.


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Caterpillar Inc. (CAT): Free Stock Analysis Report
 
AGCO Corporation (AGCO): Free Stock Analysis Report
 
Reliance Steel & Aluminum Co. (RS): Free Stock Analysis Report
 
Columbus McKinnon Corporation (CMCO): Free Stock Analysis Report
 
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