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Caterpillar: Lower Q3 Results, Earnings Guidance Fell

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Caterpillar (CAT) reported its third-quarter earnings today. The company’s third-quarter revenues fell to $12.8 billion—a 6% fall compared to the same quarter in 2018. The revenues were 7% lower than analysts’ estimates. The analysts were surveyed by Reuters. Caterpillar’s EPS fell 7.6% to $2.66. The markets expected the EPS to stay steady at $2.88. Notably, the company’s EPS disappointed the markets for the second consecutive quarter.

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Caterpillar stock fell 0.24% at 11:01 AM ET. Boeing (BA), which released its earnings today, was trading 2.6% higher at the same time. The company reaffirmed the return of its 737 MAX jet in the fourth quarter. However, the company’s EPS disappointed analysts. Boeing’s rally pushed the Dow Jones (DIA) into the green.

Caterpillar’s lower earnings guidance

Caterpillar’s earnings release also stated that the company lowered its fiscal 2019 guidance. Now, the company expects its EPS to be $10.9–$11.4 or $11.15 at the midpoint compared to the previous guidance of $12.06–$13.06 or $12.56 at the midpoint. The fresh guidance points to $1.4 EPS reduction at the midpoint.

In the statement, Caterpillar said “Caterpillar’s improved lead times, along with these dealer inventory reductions, will enable us to respond quickly to positive or negative developments in the global economy in 2020.” The statement could be a sign that revenue pressure will persist into next year.

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Caterpillar’s fine line

Caterpillar’s earnings presentation said that the lower revenues were mainly due to reduced dealer inventories. All of the segments, except the Financial Products segment, reported lower revenues. The Construction Industries segment saw a 7% decline to $5.3 billion due to lower revenues from China. The revenues were lower due to the US-China trade war. The segment’s operating profit fell 11%.

The Energy and Transportation segment’s revenues fell 2% due to a fall in the North American market. However, the segment’s operating profit saw a 5% uptick due to favorable pricing.

What to expect from other industrials

3M (MMM) will report its third-quarter earnings on Thursday. While analysts expect 3M’s revenues to grow marginally, rising costs will likely lead to a 3.5% fall in its EPS to $2.49. Analysts are cautious about 3M stock. Only two of the 18 surveyed analysts recommend a “buy.”

General Electric (GE) will report its third-quarter earnings next week. Analysts expect the company’s revenues to fall 22% to $22.9 billion. Likewise, General Electric’s EPS will likely fall to 11 cents.

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