Caterpillar Earnings Preview: Low Expectations for Q1

Caterpillar CAT, shares of which have retreated toward a 52-week low as it saw an analyst downgrade this week, is scheduled to report its first-quarter 2013 results Monday, April 22, before the markets open. Investors remain concerned about the outlook for the global economy, particularly in China, which was cited by the analyst in this week's downgrade, as well as declining metals prices that are lowering demand for mining equipment. Caterpillar announced the opening of a new facility in China back in March. Expectations Analysts on average predict that Caterpillar will report that revenue for the quarter declined about 14 percent year-over-year to $13.72 billion. Earnings of $1.42 per share are also in the consensus forecast. That would be down from a reported profit of $2.37 per share in the comparable period of last year. Note that the consensus earnings per share (EPS) estimate has slipped in the past 60 days from $1.47. And Caterpillar fell short of consensus EPS estimates in back in the fourth quarter by more than 13 percent, ending a five-quarter streak of earnings beats. The CEO said in the fourth-quarter release: "If the recent improvement in economic indicators continues, 2013 could be another record year for Caterpillar. We expect the first half of 2013 will be weaker than the first half of 2012, with better growth in the second half." The share price rose about two percent in the days following the fourth-quarter report to a year-to-date high. Looking ahead to the current quarter, the forecast currently calls for earnings down more than 18 percent year-over-year to $2.07 per share. That EPS estimate has fallen from $2.16 some 60 days ago. And revenue for the quarter is expected to be more than five percent lower to $16.36 billion. Full-year revenue is so far expected to be down by less than five percent. The Company Caterpillar is a manufacturer of construction and mining equipment that operates through three lines of businesses: Machinery, Engines and Financial Products. The Engines division produces diesel and natural gas engines and industrial turbines. The Financial Products division offers financing and insurance on its other products. The company was founded in 1925, and its headquarters are in Peoria, Illinois. Caterpillar is a component of the S&P 500 and the Dow Jones Industrial Average, and it now has a market capitalization of about $53 billion. Doug Oberhelman has been chief executive officer of the company since July 2010 and chairman of the board since November 2010. Competitors include CNH Global CNH and Deere & Co. DE. The forecast for the former, which also is scheduled to report Monday, calls for declining EPS and revenues relative to a year ago. The latter is expected to post marginal EPS and revenue growth for the most recent quarter when it reports in May. During the three months that ended in March, Caterpillar reported disappointing global sales, named new chiefs for its earth moving and mining products divisions and announced the grand opening of facilities in Tongzhu and in Wuxi, China. Performance Caterpillar has a long-term earnings per share growth forecast of 14 percent and a price-to-earnings (P/E) ratio of about 9.5. Its operating margin is better than the industry average, and it has a return on equity of more than 27 percent. The dividend yield is near 2.4 percent. The number of Caterpillar shares sold short, as of the March 28 settlement date, represents almost three percent of the float. That is down marginally from the previous period, but approximately the same as at the beginning of the year. Days to cover is about three. The consensus recommendation of analysts surveyed by Thomson/First Call who follow the stock has shifted to buying shares in the past month. None of them recommend selling. The analysts' mean price target, or where they expect the stock to go, is more than 25 percent higher than the current share price. But note that target is less than the 52-week high. The share price has pulled back about 14 percent since the beginning of the year and, as mentioned above, is nearing a 52-week low. Also, the stock is poised for a death cross. Over the past six months, Caterpillar has underperformed Deere and the broader markets.