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Trading  | October 24, 2017

Dow futures are higher by over 100 points following a spate of big beats among Dow components including 3M, GM, UTX, but none more so than Caterpillar which just announced blockbuster Q3 EPS of $1.95, nearly 50% higher than the $1.22 consensus estimate (and above the highest forecast), on revenue of $11.4 billion, which also was well above the $10.73 billion expected, which also was at the top end of the range.

More importantly, CAT also boosted its earnings and revenue forecast for the full year: the company now sees FY revenue $44 billion, up from a previous range of $42 billion to $44 billion, and 2% above the consensus estimate of $43.13 billion. It also expects this to translate into profit per share of about $4.60, or adjusted profit per share of about $6.25, far above the previous outlook for 2017 which was about $3.50 per share and adjusted profit per share of about $5.00

The company reported that Machinery, Energy & Transportation (ME&T) operating cash flow was about $600 million during the third quarter, and ME&T’s debt-to-capital ratio improved to 36.1 percent, down from 38.6% at the end of the second quarter. The company ended the third quarter of 2017 with an enterprise cash balance of $9.6 billion.

Higher sales volume and our team’s focus on cost discipline resulted in improved profit margins across our three primary segments,” said Caterpillar CEO Jim Umpleby.

The focus was on the outlook. This is what CAT said:

Caterpillar continues to see strength in a number of industries and regions, including construction in China, on-shore oil and gas in North America, and increased capital investments by mining customers. We are working with our supply chain to increase production levels to satisfy customer demand for those markets that have improved.


In July 2017, Caterpillar provided an outlook range for full-year 2017 sales and revenues of $42 billion to $44 billion, with a midpoint of $43 billion. The company now expects full-year 2017 sales and revenues of about $44 billion.


For the full year of 2017, Caterpillar now expects profit per share of about $4.60, or adjusted profit per share of about $6.25. The previous outlook for 2017 profit was about $3.50 per share at the midpoint of the sales and revenues outlook, or adjusted profit per share of about $5.00. The company now expects to incur about $1.3 billion of restructuring costs in 2017, a slight increase from the previous outlook of about $1.2 billion.  The outlook does not include potential mark-to-market gains or losses related to pension and other postemployment benefit (OPEB) plans. While the final impact will not be known until year end, the impact would be negative to profit based on information as of the end of the third quarter.


“As a result of our team’s strong performance, we are raising our 2017 profit outlook,” continued Umpleby. “We are executing our new strategy for profitable growth based on operational excellence, expanded offerings and services.”

CAT’s blockbuster results were hinted at yesterday, when the company reported that its September global retail sales rose by 13% Y/Y, the highest increase in over 5 years, going back to August 2012. On Monday, Caterpillar reported that global retail sales accelerated in each of its three main business lines over the past three months, with sales of machinery for resource industries up 8% vs. the year-ago period, construction machinery sales up 15%, and energy and transportation equipment sales up 5%.

A catalyst for CAT’s blockbuster earnings is the ongoing rebound in ccommodities, lifting demand among miners for heavy equipment, while housing markets in the U.S. and China remain robust. One potential cloud that hasn’t seemed to dampen investor enthusiasm, Caterpillar has been subject to a federal tax investigation and has contested a package of taxes and penalties the IRS has proposed.

Whatever the reason behind the company spectacular results, the market is loving it, sending the stock 7% or $9 higher to $141, a new all time high, and in the process lifting Dow Jones futures by 140 points as of this moment.

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