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Caterpillar Reports Weak Q1 Performance, Withdraws Guidance

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Today, Caterpillar (NYSE:CAT) reported its first-quarter earnings results. For the quarter, the company reported an adjusted EPS of $1.60 on revenues of $10.64 billion. The amount fell short of analysts’ EPS estimates of $1.69 and revenues estimates of $10.90 billion. Caterpillar’s management blamed lower end-user demand and dealers lowering their inventory levels for the decline in its sales. Also, the company withdrew its EPS guidance for 2020 due to uncertainty about COVID-19’s impact on the global economy. Despite reporting a weak first-quarter performance, the company was trading 1.1% higher in the pre-market trading hours. The broader equity market was stronger due to optimism about reopening the US economy, which led to a rise in the company’s stock price.

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Caterpillar’s revenue fall YoY

Caterpillar’s revenue fell by 21.0% YoY (year-over-year) from $13.47 billion to $10.64 billion. The dealers increased their machine and engine inventories by approximately $100 million during the quarter compared to an increase of $1.30 billion in the first quarter of 2020. So, the lower inventory levels and lower end-user demand dragged the company’s revenue down.

Moving towards the segmental performance, the construction industries and resource industries were hit the worst. Their revenue fell by 27% and 24%, respectively. Meanwhile, the Energy & Transportation segment and All Other segment reported a YoY fall of 17% and 10%, respectively. The company’s revenue from the Financial Products segment saw a marginal decline of 3%. If you look at Caterpillar’s performance across the region, its revenue fell by 24% in North America, 21% in Latin America, 7% in EAME, and 21% in the Asia-Pacific region.

Lower operating profits

For the quarter, Caterpillar reported operating profits of $1.404 billion—a fall of 36.4% from $2.21 billion in the same quarter of the previous year. Lower sales and unfavorable currency lowered the company’s operating profits. However, the decline in SG&A (selling, general and administrative) and R&D (research and development) expenses and lower manufacturing costs offset some of the declines in the operating profits.

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Caterpillar’s adjusted EPS fell over 45%

For the quarter, Caterpillar reported an EPS of $1.98. However, removing special items, the company’s adjusted EPS was $1.60—a fall of 45.6% from $2.94 in the same quarter of the previous year. Lower operating profits, increased interest expenses, and a higher tax rate dragged the company’s adjusted EPS down. For the quarter, the company’s interest expenses increased by $10 million to $113 million. In the first quarter, Caterpillar’s tax rate was at 31% compared to 26% in the first quarter of 2019.

YTD stock performance

Since the beginning of this year, Caterpillar has lost 22.0% of its stock value as of Monday. The company has underperformed the broader equity markets and 3M (NYSE:MMM). During the same period, the S&P 500 Index has declined by 10.9%, while 3M has fallen by 12.9%. General Electric (NYSE:GE) has declined by 42.4% YTD. Before Caterpillar’s first-quarter earnings, Morgan Stanley  downgraded the stock from “equal weight” to “underweight.” As reported by CNBC, the investment firm downgraded Caterpillar in expectation of a multiyear downturn in non-residential construction activities.

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