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Will High Volumes Aid Caterpillar's (CAT) Q3 Earnings?
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Caterpillar Inc. (CAT - Free Report) is likely to register an improvement in both the top and bottom lines when it reports third-quarter 2023 results on Oct 31, before the opening bell.
Higher Volumes, Prices to Drive Q3 Results
Sales improvement across all of its segments, aided by higher volumes reflecting strong end demand in its markets and positive pricing impact, is likely to have boosted CAT’s overall sales performance. The Zacks Consensus Estimate for total sales is $16.5 billion, suggesting growth of 10.2% from the prior-year quarter.
Higher sales, easing of supply-chain snarls and savings from cost-control actions are expected to have negated the impact of inflated costs, driving the improvement in the quarterly earnings. The consensus estimate for quarterly earnings per share for Caterpillar is currently $4.72, which indicates growth of 19.5% from the year-ago reported figure.
Q2 Results & Surprise History
In the last reported quarter, Caterpillar delivered improved year-over-year performance in its revenues and earnings. The company also beat the Zacks Consensus Estimate on both the metrics. CAT has a trailing four-quarter earnings surprise of 18.5%, on average.
Per the Federal Reserve, for the third quarter of 2023, industrial production rose at an annual rate of 2.5%. In September 2023, the Institute for Supply Management’s manufacturing index was 49%. Even though the figure remained below 50, it marked an improvement from the readings of 47.6% in August and 46.4% in July. The New Orders Index has been in the contraction territory with its September reading of 49.2%. However, the figure has shown an improvement from 46.8% in August and the July reading of 47.3%.
Customers have been putting their reins on spending due to the persistent inflationary scenario. This is likely to have impacted Caterpillar’s order levels in the quarter under review. Nevertheless, the company had reported a solid backlog of $30.7 billion at the end of the second quarter of 2023, which is expected to have contributed to the top-line growth in the third quarter of 2023.
On a positive note, the delivery performance of suppliers to manufacturing organizations was reported to be improving for the 12th consecutive month in September. The Supplier Deliveries Index registered 46.4% growth in September, compared with 48.6% in August and 46.1% in July. This indicates that the supply-chain issues, which have been plaguing the industry, are showing signs of easing.
However, inflated costs for raw materials and freight services are likely to have weighed on the company’s margins in the quarter to be reported. Higher selling, general and administrative (SG&A) expenses due to increased incentive compensation and elevated research and development (R&D) expenses to support the company’s growth strategy and new product development are expected to have aggravated the pressure on margins. We expect the company’s cost of sales to escalate 5.6%, SG&A expenses to increase 16.4% and R&D expenses to rise 16.1% in the third quarter.
Nevertheless, savings from Caterpillar’s cost-control measures and restructuring actions are likely to have negated some of these setbacks and contributed to the margin expansion.
Also, third-quarter revenues margins are likely have been impacted by seasonal factors and although, are expected to be down sequentially, will be higher year over year. Our model projects a 15.6% year-over-year increase in operating income to $2.86 billion. The operating margin for the third quarter is projected to be 17.5% compared with 16.5% in the year-ago quarter.
Segment Expectations
The Resource Industries segment’s third-quarter external sales are pegged at $3.3 billion, suggesting year-over-year growth of 10%, as per our model. Sales growth is expected across all regions. High end-user demand for equipment and aftermarket parts as well as favorable price realization are expected to have led to the improvement. We expect volume and pricing to contribute 11% and 2%, respectively, to the revenue growth in the quarter.
The segment is expected to report an operating profit of $495 million, suggesting a 2.2% decline from the year-ago quarter’s figure of $506 million. The segment’s margins are projected to be 14.9%, which is expected to be lower owing to seasonal patterns.
We project the Construction segment’s external sales to be $6.26 million, indicating growth of 0.3% from the year-ago quarter, The uptick is likely to have been driven by the improvement in sales across all regions. In North America, demand from both residential and non-residential construction is likely to have aided the performance.
Increased construction activity is expected to have driven machine demand in EAME and Latin America as well. Low construction demand in China due to the slowdown in the property sector is likely to have been offset by higher demand in other regions of Asia Pacific. We expect volume and pricing growth to be 3% and 1%, respectively, for the segment in the quarter.
The Construction segment’s operating profit is projected to be $1.1 billion, indicating year-over-year decline of 8% due to impacts from cost absorption and a ramp-up in strategic investment spend.
For the Energy & Transportation segment, the estimate for external sales is $1.17 billion, suggesting a decline of 1.5% from the prior-year reported figure. Volume growth is projected to be 16%, reflecting the solid demand across all applications and regions. Pricing is expected to contribute 5% to the sales growth.
The estimate for the segment’s operating profit is pegged at $1.09 million, suggesting a 17% improvement from the year-ago reported figure aided by higher volume and stronger price realization.
What Our Model Unveils
Our proven model doesn’t conclusively predict an earnings beat for Caterpillar this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. That is not the case here, as you will see below. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Shares of the company have gained 33.2% in the past year compared with the industry’s 14.5% growth.
Image Source: Zacks Investment Research
Stocks Poised to Beat Earnings Estimates
Here are some Industrial Products stocks, which according to our model, have the right combination of elements to beat on earnings in their upcoming releases
ESAB Corporation (ESAB - Free Report) , scheduled to release earnings on Nov 1, has an Earnings ESP of +0.81% and sports a Zacks Rank of 1 at present.
The Zacks Consensus Estimate for ESAB’s third-quarter earnings is pegged at 92 cents per share. Earnings estimates have been unchanged in the past 60 days. It has an average trailing four-quarter earnings surprise of 13.6%.
H&E Equipment Services, Inc. (HEES - Free Report) , expected to release earnings on Oct 26, has an Earnings ESP of +14.79% and a Zacks Rank of 2, at present.
The Zacks Consensus Estimate for HEES’ earnings for the third quarter is pegged at $1.31 per share. The consensus estimate for 2023 earnings has moved 8% north in the past 60 days. It has an average trailing four-quarter earnings surprise of 24.1%.
Ingersoll Rand Inc. (IR - Free Report) , expected to release earnings on Nov 1, has an Earnings ESP of +0.36%. IR currently carries a Zacks Rank of 3.
The consensus estimate for Ingersoll Rand’s earnings for the third quarter is pegged at 70 cents per share. Earnings estimates have been unchanged in the past 60 days. It has an average trailing four-quarter earnings surprise of 14.9%.
Image: Bigstock
Will High Volumes Aid Caterpillar's (CAT) Q3 Earnings?
Caterpillar Inc. (CAT - Free Report) is likely to register an improvement in both the top and bottom lines when it reports third-quarter 2023 results on Oct 31, before the opening bell.
Higher Volumes, Prices to Drive Q3 Results
Sales improvement across all of its segments, aided by higher volumes reflecting strong end demand in its markets and positive pricing impact, is likely to have boosted CAT’s overall sales performance. The Zacks Consensus Estimate for total sales is $16.5 billion, suggesting growth of 10.2% from the prior-year quarter.
Higher sales, easing of supply-chain snarls and savings from cost-control actions are expected to have negated the impact of inflated costs, driving the improvement in the quarterly earnings. The consensus estimate for quarterly earnings per share for Caterpillar is currently $4.72, which indicates growth of 19.5% from the year-ago reported figure.
Q2 Results & Surprise History
In the last reported quarter, Caterpillar delivered improved year-over-year performance in its revenues and earnings. The company also beat the Zacks Consensus Estimate on both the metrics. CAT has a trailing four-quarter earnings surprise of 18.5%, on average.
Caterpillar Inc. Price and EPS Surprise
Caterpillar Inc. price-eps-surprise | Caterpillar Inc. Quote
Factors to Note
Per the Federal Reserve, for the third quarter of 2023, industrial production rose at an annual rate of 2.5%. In September 2023, the Institute for Supply Management’s manufacturing index was 49%. Even though the figure remained below 50, it marked an improvement from the readings of 47.6% in August and 46.4% in July. The New Orders Index has been in the contraction territory with its September reading of 49.2%. However, the figure has shown an improvement from 46.8% in August and the July reading of 47.3%.
Customers have been putting their reins on spending due to the persistent inflationary scenario. This is likely to have impacted Caterpillar’s order levels in the quarter under review. Nevertheless, the company had reported a solid backlog of $30.7 billion at the end of the second quarter of 2023, which is expected to have contributed to the top-line growth in the third quarter of 2023.
On a positive note, the delivery performance of suppliers to manufacturing organizations was reported to be improving for the 12th consecutive month in September. The Supplier Deliveries Index registered 46.4% growth in September, compared with 48.6% in August and 46.1% in July. This indicates that the supply-chain issues, which have been plaguing the industry, are showing signs of easing.
However, inflated costs for raw materials and freight services are likely to have weighed on the company’s margins in the quarter to be reported. Higher selling, general and administrative (SG&A) expenses due to increased incentive compensation and elevated research and development (R&D) expenses to support the company’s growth strategy and new product development are expected to have aggravated the pressure on margins. We expect the company’s cost of sales to escalate 5.6%, SG&A expenses to increase 16.4% and R&D expenses to rise 16.1% in the third quarter.
Nevertheless, savings from Caterpillar’s cost-control measures and restructuring actions are likely to have negated some of these setbacks and contributed to the margin expansion.
Also, third-quarter revenues margins are likely have been impacted by seasonal factors and although, are expected to be down sequentially, will be higher year over year. Our model projects a 15.6% year-over-year increase in operating income to $2.86 billion. The operating margin for the third quarter is projected to be 17.5% compared with 16.5% in the year-ago quarter.
Segment Expectations
The Resource Industries segment’s third-quarter external sales are pegged at $3.3 billion, suggesting year-over-year growth of 10%, as per our model. Sales growth is expected across all regions. High end-user demand for equipment and aftermarket parts as well as favorable price realization are expected to have led to the improvement. We expect volume and pricing to contribute 11% and 2%, respectively, to the revenue growth in the quarter.
The segment is expected to report an operating profit of $495 million, suggesting a 2.2% decline from the year-ago quarter’s figure of $506 million. The segment’s margins are projected to be 14.9%, which is expected to be lower owing to seasonal patterns.
We project the Construction segment’s external sales to be $6.26 million, indicating growth of 0.3% from the year-ago quarter, The uptick is likely to have been driven by the improvement in sales across all regions. In North America, demand from both residential and non-residential construction is likely to have aided the performance.
Increased construction activity is expected to have driven machine demand in EAME and Latin America as well. Low construction demand in China due to the slowdown in the property sector is likely to have been offset by higher demand in other regions of Asia Pacific. We expect volume and pricing growth to be 3% and 1%, respectively, for the segment in the quarter.
The Construction segment’s operating profit is projected to be $1.1 billion, indicating year-over-year decline of 8% due to impacts from cost absorption and a ramp-up in strategic investment spend.
For the Energy & Transportation segment, the estimate for external sales is $1.17 billion, suggesting a decline of 1.5% from the prior-year reported figure. Volume growth is projected to be 16%, reflecting the solid demand across all applications and regions. Pricing is expected to contribute 5% to the sales growth.
The estimate for the segment’s operating profit is pegged at $1.09 million, suggesting a 17% improvement from the year-ago reported figure aided by higher volume and stronger price realization.
What Our Model Unveils
Our proven model doesn’t conclusively predict an earnings beat for Caterpillar this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the chances of beating estimates. That is not the case here, as you will see below. You can uncover the best stocks before they’re reported with our Earnings ESP Filter.
Earnings ESP: The Earnings ESP for CAT is -2.64%.
Zacks Rank: The company currently has a Zacks Rank of 2. You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.
Price Performance
Shares of the company have gained 33.2% in the past year compared with the industry’s 14.5% growth.
Image Source: Zacks Investment Research
Stocks Poised to Beat Earnings Estimates
Here are some Industrial Products stocks, which according to our model, have the right combination of elements to beat on earnings in their upcoming releases
ESAB Corporation (ESAB - Free Report) , scheduled to release earnings on Nov 1, has an Earnings ESP of +0.81% and sports a Zacks Rank of 1 at present.
The Zacks Consensus Estimate for ESAB’s third-quarter earnings is pegged at 92 cents per share. Earnings estimates have been unchanged in the past 60 days. It has an average trailing four-quarter earnings surprise of 13.6%.
H&E Equipment Services, Inc. (HEES - Free Report) , expected to release earnings on Oct 26, has an Earnings ESP of +14.79% and a Zacks Rank of 2, at present.
The Zacks Consensus Estimate for HEES’ earnings for the third quarter is pegged at $1.31 per share. The consensus estimate for 2023 earnings has moved 8% north in the past 60 days. It has an average trailing four-quarter earnings surprise of 24.1%.
Ingersoll Rand Inc. (IR - Free Report) , expected to release earnings on Nov 1, has an Earnings ESP of +0.36%. IR currently carries a Zacks Rank of 3.
The consensus estimate for Ingersoll Rand’s earnings for the third quarter is pegged at 70 cents per share. Earnings estimates have been unchanged in the past 60 days. It has an average trailing four-quarter earnings surprise of 14.9%.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.