Shares of Caterpillar Inc. (CAT – Free Caterpillar Stock Report) are trading sharply lower after the heavy equipment manufacturer reported mixed fourth-quarter results. The company registered a sales surprise of $14.342 billion, which was an 11% year-over year gain, and beat our $14.020 billion call. The increase was due to higher sales volumes, driven by improved demand across all three of its primary operating segments. Favorable price realization, most notably in the Construction Industries unit, also contributed to the performance. Taking a closer look at the segments, Construction Industries, the largest based on sales, gained from a recovery in oil and gas activity. Meanwhile, Resource Industries registered the biggest year-over-year sales advance (21%). Mining activity was robust, as commodity market fundamentals remained positive and increased non-residential construction activity perked up.
Adjusted share net of $2.55, which excluded a number of nonrecurring items, fell short of our $2.95 estimate, but was 18% higher than the year-earlier tally. Full year results, which included sales of $54.722 billion and earnings per share of $11.22, are highlighted by record profit and the return of a significant level of capital to shareholders.
Weaker-than-expected sales guidance for 2019 soured overall market sentiment. Management assumes modest top-line expansion based on the fundamentals across diverse end markets, as well as the current macroeconomic and geopolitical environment. Specifically, an ongoing slowdown for sales in China, where the economic growth rate has slowed to levels not seen in nearly three decades, and a correction in crude prices were likely reasons for Caterpillar's tepid outlook. To make matters worse, the company also said its order backlog fell $800 million over the final three months of the year, to $16.500 billion. Caterpillar intends to maintain focus on cost discipline, while investing in expanded offerings and services, resulting in a profit guidance of $11.75 to $12.75. We are maintaining our 2019 top- and bottom-line estimates of $57.600 billion and $12.50, respectively.
The recent price movement lowers the year-to-date gain for this blue-chip stock, and the shares are well off their 52-week high. However, it has left the issue trading at a more-attractive entry point. Additionally, Caterpillar stock possesses other positive attributes, which are punctuated by the likely continuation of its friendly shareholder policy.
About The Company:Caterpillar Incorporated is the world’s largest producer of earth-moving equipment. Major global markets include road building, mining, logging, agriculture, petroleum, and general construction. Products include tractors, scrapers, graders, compactors, loaders, off-highway truck engines, and pipelayers. Also makes diesel & turbine engines and lift trucks.
- Dominic Silva
