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What Can You Expect from Caterpillar’s 4Q16 Earnings?

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Part 3
What Can You Expect from Caterpillar’s 4Q16 Earnings? PART 3 OF 5

Analysts Expect Lower Revenues for Caterpillar in 4Q16

Caterpillar’s revenue estimates

Caterpillar (CAT) reported ~$11.0 billion in consolidated revenues for 4Q15. Analysts estimate that CAT will report ~$9.9 billion in 4Q16 revenues, which is nearly an 11% fall on a YoY (year-over-year) basis.

Analysts Expect Lower Revenues for Caterpillar in 4Q16

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Caterpillar (CAT) derives more than 90% of its revenues from its Construction Industries (ITB), Resource Industries, and Energy & Transportation segments. The expected fall in the company’s 4Q16 revenues is primarily due to lower sales expectations across the company’s large equipment segments. Also, lower price realizations due to excess industry capacity can have a negative impact on the company’s revenues according to analysts’ estimates.

For the nine months ended September 30, 2016, Caterpillar reported its total sales and revenues at ~$29.0 billion. The company has ~$39.0 billion as its revenue guidance for fiscal 2016. Therefore, analysts’ expectations are in line with the company’s 2016 guidance.

Cost reductions

On September 24, 2015, Caterpillar announced a significant restructuring and cost-cutting initiative, with actions expected through 2018. It included plans to reduce operating costs by about $1.5 billion annually.

The company also plans to reduce the workforce by more than 10,000 people, consolidate or close more than 20 facilities, and decrease manufacturing square footage by more than 10%.

Analysts Expect Lower Revenues for Caterpillar in 4Q16

As part of this initiative, the company reduced about $1.2 billion in period costs, primarily period cost of sales and SG&A (selling, general, and administrative) expenses during the nine months ended September 30, 2016.

Now let’s look at Caterpillar’s margin estimates and compare the expected margins with the expected margins of its peers AGCO (AGCO), Deere & Company (DE), and Astec Industries (ASTE).

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