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Energy & Transportation to Drive Caterpillar's (CAT) Q3 Earnings
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Caterpillar Inc.’s (CAT - Free Report) Energy & Transportation segment’s third-quarter 2023 top-line results are likely to reflect the ongoing strength of its diverse markets as well as favorable price realization. The Oil and Gas sector, particularly, is expected to have been a significant driver backed by the upbeat price trends. High volumes and pricing are expected to have offset the impact of elevated manufacturing costs on its margins.
A Look at the Segment’s Q2 Performance
Caterpillar’s Energy & Transportation segment supports customers in oil and gas, power generation, marine, rail and industrial applications. The segment accounted for around 44% of the company’s Machinery and Energy & Transportation sales in the second quarter of 2023.
The Energy & Transportations segment’s total sales improved 27% year over year to $7.2 billion in the second quarter of 2023. The upside was driven by favorable price realization and elevated sales volume. Sales increased across all applications. Growth was noted across all regions, led by North America (37%) followed by EAME, Latin America and Asia Pacific with growth of 22%, 20% and 17%, respectively.
Favorable price realization and higher sales volume helped the segment offset the impact of manufacturing costs and higher Selling General and Administrative expenses (SG&A) as well as Research & Development (R&D) expenses. This resulted in a 93% year-over-year surge in operating profit to $1.27 billion in the second quarter.
Expectations for the Segment in Q3
As per our model, the Energy & Transportation segment’s third-quarter 2023 external sales are pegged at $6 billion, indicating growth of 20% from the year-ago quarter. The segment is expected to witness growth across all regions. Our sales estimates for EAME suggest year-over-year growth of 12% and 11% growth for North America. We project 4% growth for both Latin America and Asia Pacific.
We expect the Oil & Gas sector to contribute 25% growth in revenues for the Energy & Transportation segment. Favorable oil and natural gas price trends through the quarter are likely to have boosted demand. Sales have been strong for turbines as well as reciprocating engines used in gas compression and well servicing applications.
For the Power Generation sector, sales have been increasing in large reciprocating engines, primarily data center applications and small reciprocating engines. We expect 23.7% growth for the Power Generation sector in the third quarter.
Per the Federal Reserve, for the third quarter of 2023, industrial production is anticipated to rise 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. This is expected to reflect in the sales of the Industrial sector in the quarter. We have projected a 19.6% rise in third-quarter sales in the Industrial sector.
Sales in the Transportation sector are projected to be 12.1% for the third quarter. We expect demand to have been supported by the marine sector as customers continue to upgrade the aging fleet.
Overall, volume growth will likely contribute 16% to the segment’s sales and price will be a favorable 5%, as per our model.
The segment’s operating profit and margin will likely reflect higher sales volume and favorable price realization, which will be partially offset by unfavorable manufacturing costs (mainly higher material costs) and higher SG&A and R&D expenses. The increase in SG&A/R&D expenses is expected to reflect CAT’s ongoing investments aligned with strategic initiatives.
Our projection for the segment’s operating profit for the third quarter is $1.09 billion, indicating an increase of 17% from the prior-year quarter.
Q3 Estimates for Caterpillar
The Zacks Consensus Estimate for Caterpillar’s third-quarter total sales is pegged at $16.6 billion, suggesting growth of 10.4% from the prior-year quarter. The consensus mark for earnings per share is currently $4.72, indicating an improvement of 19.5% from the last year.
The quarterly results are likely to reflect improved results in the Energy & Transportation segment as well as other segments. Click here to know how the company’s overall Q3 performance is expected to be.
Shares of the company have gained 24.4% in the past year compared with the industry’s 26.3% growth.
Image Source: Zacks Investment Research
Q3 Expectations for Peers
Terex Corporation (TEX - Free Report) , which is a global manufacturer of aerial work platforms, materials processing machinery and cranes, is expected to witness year-over-year growth of 11.5% in revenues to $1.25 billion in third-quarter 2023. Earnings per share are pegged at $1.67, suggesting growth of 39.2%. TEX currently carries a Zacks Rank #3 (Hold). TEX’s shares have gained 31% in a year’s time.
The Zacks Consensus Estimate for third-quarter 2023 revenues for Astec Industries (ASTE - Free Report) is currently pegged at $329.5 million, projecting year-over-year growth of 4.5%. The estimate for earnings per share is 64 cents, suggesting 129% year-over-year growth. Astec is a leading manufacturer and marketer of road-building equipment. The Zacks Ranked #1 company has gained 1% over the past year.
The Manitowoc Company (MTW - Free Report) is a leading provider of engineered lifting solutions, including lattice-boom cranes, tower cranes, mobile telescopic cranes and boom trucks. The Zacks Consensus Estimate for third-quarter 2023 revenues for MTW is $469 million, indicating year-over-year growth of 3%. The company is expected to report a loss of 1 cent per share in the third quarter against earnings per share of 10 cents in the year-ago quarter. MTW currently carries a Zacks Rank of 3 . The stock has appreciated 45% over the past year.
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Energy & Transportation to Drive Caterpillar's (CAT) Q3 Earnings
Caterpillar Inc.’s (CAT - Free Report) Energy & Transportation segment’s third-quarter 2023 top-line results are likely to reflect the ongoing strength of its diverse markets as well as favorable price realization. The Oil and Gas sector, particularly, is expected to have been a significant driver backed by the upbeat price trends. High volumes and pricing are expected to have offset the impact of elevated manufacturing costs on its margins.
A Look at the Segment’s Q2 Performance
Caterpillar’s Energy & Transportation segment supports customers in oil and gas, power generation, marine, rail and industrial applications. The segment accounted for around 44% of the company’s Machinery and Energy & Transportation sales in the second quarter of 2023.
The Energy & Transportations segment’s total sales improved 27% year over year to $7.2 billion in the second quarter of 2023. The upside was driven by favorable price realization and elevated sales volume. Sales increased across all applications. Growth was noted across all regions, led by North America (37%) followed by EAME, Latin America and Asia Pacific with growth of 22%, 20% and 17%, respectively.
Favorable price realization and higher sales volume helped the segment offset the impact of manufacturing costs and higher Selling General and Administrative expenses (SG&A) as well as Research & Development (R&D) expenses. This resulted in a 93% year-over-year surge in operating profit to $1.27 billion in the second quarter.
Expectations for the Segment in Q3
As per our model, the Energy & Transportation segment’s third-quarter 2023 external sales are pegged at $6 billion, indicating growth of 20% from the year-ago quarter. The segment is expected to witness growth across all regions. Our sales estimates for EAME suggest year-over-year growth of 12% and 11% growth for North America. We project 4% growth for both Latin America and Asia Pacific.
We expect the Oil & Gas sector to contribute 25% growth in revenues for the Energy & Transportation segment. Favorable oil and natural gas price trends through the quarter are likely to have boosted demand. Sales have been strong for turbines as well as reciprocating engines used in gas compression and well servicing applications.
For the Power Generation sector, sales have been increasing in large reciprocating engines, primarily data center applications and small reciprocating engines. We expect 23.7% growth for the Power Generation sector in the third quarter.
Per the Federal Reserve, for the third quarter of 2023, industrial production is anticipated to rise 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. This is expected to reflect in the sales of the Industrial sector in the quarter. We have projected a 19.6% rise in third-quarter sales in the Industrial sector.
Sales in the Transportation sector are projected to be 12.1% for the third quarter. We expect demand to have been supported by the marine sector as customers continue to upgrade the aging fleet.
Overall, volume growth will likely contribute 16% to the segment’s sales and price will be a favorable 5%, as per our model.
The segment’s operating profit and margin will likely reflect higher sales volume and favorable price realization, which will be partially offset by unfavorable manufacturing costs (mainly higher material costs) and higher SG&A and R&D expenses. The increase in SG&A/R&D expenses is expected to reflect CAT’s ongoing investments aligned with strategic initiatives.
Our projection for the segment’s operating profit for the third quarter is $1.09 billion, indicating an increase of 17% from the prior-year quarter.
Q3 Estimates for Caterpillar
The Zacks Consensus Estimate for Caterpillar’s third-quarter total sales is pegged at $16.6 billion, suggesting growth of 10.4% from the prior-year quarter. The consensus mark for earnings per share is currently $4.72, indicating an improvement of 19.5% from the last year.
The quarterly results are likely to reflect improved results in the Energy & Transportation segment as well as other segments. Click here to know how the company’s overall Q3 performance is expected to be.
Caterpillar currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Price Performance
Shares of the company have gained 24.4% in the past year compared with the industry’s 26.3% growth.
Image Source: Zacks Investment Research
Q3 Expectations for Peers
Terex Corporation (TEX - Free Report) , which is a global manufacturer of aerial work platforms, materials processing machinery and cranes, is expected to witness year-over-year growth of 11.5% in revenues to $1.25 billion in third-quarter 2023. Earnings per share are pegged at $1.67, suggesting growth of 39.2%. TEX currently carries a Zacks Rank #3 (Hold). TEX’s shares have gained 31% in a year’s time.
The Zacks Consensus Estimate for third-quarter 2023 revenues for Astec Industries (ASTE - Free Report) is currently pegged at $329.5 million, projecting year-over-year growth of 4.5%. The estimate for earnings per share is 64 cents, suggesting 129% year-over-year growth. Astec is a leading manufacturer and marketer of road-building equipment. The Zacks Ranked #1 company has gained 1% over the past year.
The Manitowoc Company (MTW - Free Report) is a leading provider of engineered lifting solutions, including lattice-boom cranes, tower cranes, mobile telescopic cranes and boom trucks. The Zacks Consensus Estimate for third-quarter 2023 revenues for MTW is $469 million, indicating year-over-year growth of 3%. The company is expected to report a loss of 1 cent per share in the third quarter against earnings per share of 10 cents in the year-ago quarter. MTW currently carries a Zacks Rank of 3 . The stock has appreciated 45% over the past year.