Caterpillar’s 3Q16 Earnings Bring ‘Inflection’ Back into Focus

Caterpillar (CAT), the world’s largest manufacturer of construction (ITB) and mining (PICK) equipment, is set to declare its 3Q16 earnings before the market opens on October 25. Among its competitors in the machinery space, Deere & Company (DE) is slated to release its 4Q16 earnings on November 23. AGCO (AGCO), which bought the Challenger tractor brand from Caterpillar, will declare its 3Q16 earnings results on October 26. Joy Global (JOY) declared its 3Q16 earnings results on September 1. It’s slated to release its 4Q16 results on December 14.

The consensus forecast is for Caterpillar to post an adjusted EPS (earnings per share) of $0.77 for year-over-year growth of 2.6%. Analysts expect sales to fall 9.4% to $9.9 billion. These are at the top end of the company’s sales guidance of $9.8 billion–$9.9 billion and earnings guidance of $0.72–$0.77. The company has been experiencing the fourth consecutive year of contraction in its end markets. Investors will likely be keen to know whether the company sees any improvements in fiscal 2017 in its upcoming earnings call.

In its 2Q16 earnings call, Caterpillar reduced its sales and earnings guidance based on lingering weakness in its underlying businesses. Other factors include increasing geopolitical risks to growth such as the impact of the Brexit vote as well as negative election rhetoric aimed toward US businesses that outsource manufacturing.

The company reduced the top end of its sales forecast by $1.5 billion to the new range of $40 billion–$40.5 billion. Caterpillar reduced its adjusted EPS guidance by $0.25 to $2.75. Excluding restructuring costs, its EPS is expected to be $3.55—compared to previous estimates of $3.70.