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Source: istock

Caterpillar's Earnings Beat Forecasts, Stock Still Falls

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Caterpillar stock is trending downwards in today’s pre-market trading session. The stock has fallen 2.1 percent as of 9:04 a.m. ET. The stock has been falling despite the company's better-than-expected second-quarter results. In comparison, Caterpillar's earnings were weak in the first quarter.

How did Caterpillar perform in the second quarter?

Caterpillar reported an adjusted EPS of $1.03 in the second quarter. The adjusted EPS beat analysts’ consensus estimate of $0.64. The company's revenues of $10.0 billion also beat analysts’ consensus estimate of $9.4 billion. The second-quarter revenues fell about 30.7% YoY (year-over-year) from $14.4 billion in the second quarter of 2019. The significant decline in Caterpillar's revenues is due to a coronavirus-related slump in demand.

In the second quarter, dealers reduced their machine and engine inventories by nearly $1.4 billion compared to a rise of nearly $500 million in the second quarter of 2019. As a result, the lower inventory levels dragged the industrial machinery manufacturer’s revenue down.

Moving towards the segmental performance, the construction industries and resource industries were hit the worst. Their revenue declined by 37% and 35% YoY, respectively. Meanwhile, the Energy & Transportation segment and the Financial Products segment fell by 24% and 13% YoY, respectively.

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Source: Pixabay

In Caterpillar's second-quarter earnings release, Jim Umpleby, the chairman and CEO, said, “I am proud of the global team’s continued focus on safety while executing our strategy and serving our customers.” He also said, “In the second quarter, our employees and dealers remained dedicated to providing the essential products and services the world needs under very challenging conditions.”

Coronavirus impacted Caterpillar's earnings

For the quarter, Caterpillar reported an EPS of $0.84. However, removing special items, the company’s adjusted EPS was $1.03—a fall from $2.83 in the second quarter of 2019. Lower operating profits and a higher tax rate dragged the company’s adjusted EPS down. In the second quarter, the company’s operating profit decreased to $784 million from $2.2 billion in the second quarter of 2019. Caterpillar’s tax rate was 33.5% in the second quarter compared to 25.9% in the second quarter of 2019.

Caterpillar stock is tracked by 26 Wall Street analysts. Among the analysts, 12 recommend a buy, 12 recommend a hold, and two recommend a sell. Wall Street analysts’ mean target price on the stock is $133.55, which implies a 2.3% loss from the last closing price of $136.73. The consensus target price for the stock has risen from $129.70 in June—a rise of 3.0%.

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