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What to Expect from Caterpillar’s Future Earnings

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Sales outlook

Caterpillar’s (CAT) 4Q16 earnings were driven by strong operational performance accompanied by the benefits from its ongoing restructuring and cost reduction initiatives. As a result, CAT’s adjusted EPS (earnings per share) remained flat at $0.83 on a YoY (year-over-year) basis despite a 13% fall in the company’s sales.

 

For 2017, Caterpillar (CAT) estimates the midpoint of its sales and revenue guidance to be $37.5 billion, which is ~2.6% lower compared to its reported sales for 2016. Weakness in North American Construction’s new equipment sales, rail, marine, power generation, and industrial engine sales remained as major concerns going forward.

Other concerns 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.

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Caterpillar’s EPS guidance

Caterpillar’s adjusted profit in 2016 stood at $3.42 per share. For 2017, the company expects its adjusted profit to be ~$2.90 per share at the midpoint of its sales and revenue guidance. The estimated fall in its adjusted profit per share is primarily due to the expected decrease in sales and lower per-share restructuring costs on a YoY basis.

CAT reported its restricting cost at $0.90 per share in 2016. For 2017, the company expects its per-share restructuring costs to be ~$0.60. However, stability in oil prices and continued improvement in the company’s construction sales and a strong gas compression business in North America could have a positive impact on the company’s top line in 2017.

Analysts’ expectations

Following Caterpillar’s 4Q16 results, analysts revised down their future EBITDA[1. earnings before interest, tax, depreciation, and amortization] estimates. For the coming quarter, analysts expect Caterpillar’s EBITDA to be ~$1.1 billion, compared to pre-4Q16 estimates of ~$1.2 billion.

However, analysts anticipate CAT’s EBITDA margins to be ~12.4% compared to their pre-4Q16 estimate of 11.6% due to the company’s continued focus on cost reductions.

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