Caterpillar Inc. (CAT) Stock Rises on Record Earnings
Caterpillar Inc. (NYSE: CAT) stock traded by as much as 2.7 percent higher on Monday morning after the company reported record second-quarter earnings and raised its full-year guidance. Investors cheered the strong quarter, but analysts say there is clear evidence Caterpillar's growth is slowing.
Caterpillar reported second-quarter adjusted earnings per share of $2.97 on revenue of $14.01 billion. Both numbers topped consensus analyst estimates of $2.37 and $13.89 billion, respectively. Revenue was up 7 percent from a year ago.
"Caterpillar delivered record second-quarter profit per share," CEO Jim Umpleby says in a statement. "Based on outstanding results in the first half of the year and continued strength in many of our end markets, Caterpillar is again raising our profit outlook for 2018."
Caterpillar raised its full-year EPS guidance by 75 cents to a new range of between $11 and $12.
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Caterpillar also says the impact of the international trade war will add between $100 million and $200 million in costs for the company in the second half of the year, but management indicated that it will offset those higher costs by raising prices.
Caterpillar said it bought back $750 million shares of stock in the second quarter and expects buybacks to continue at the same level throughout the rest of the year. The company also raised its dividend by 10 percent to 86 per share, which is roughly a 2.3 percent yield based on the current share price.
CAT stock reacted positively to the earnings beat and guidance hike, especially considering CFO Brad Halverson had previously said the company's first-quarter numbers would be its "high-water mark" for the year. The stock moved as much as 2.7 percent higher early Monday, but then dropped to an increase of 0.5 percent.
However, Bank of America analyst Ross Giraldi says Caterpillar's growth is slowing.
Caterpillar reported 25 percent growth in Machinery and Energy & Transportation sales in the second quarter, in line with the 25 percent growth in global retail sales it reported last Friday.
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"The good news on the 25 percent sales growth is that it improved 100 [basis points] from May," Giraldi says. "The more bearish interpretation is that revenue growth is no longer outpacing dealer sales growth for the first time since Q416 -- a classic sign that dealer inventories are beginning to normalize -- a precursor to a plateau in production and growth slowdown, in our view."
Bank of America has a "neutral" rating and $163 price target for CAT stock.
Wayne Duggan is a freelance investment strategy reporter with a focus on energy and emerging market stocks. He has a degree in brain and cognitive sciences from the Massachusetts Institute of Technology and specializes in the psychological challenges of investing. He is a senior financial market reporter for Benzinga and has contributed financial market analysis to Motley Fool, Seeking Alpha and InvestorPlace. He is also the author of the book "Beating Wall Street With Common Sense," which focuses on the practical strategies he has used to outperform the stock market. You can follow him on Twitter @DugganSense, check out his latest content at tradingcommonsense.com or email him at wpd@tradingcommonsense.com.
