Yahoo Finance Will Caterpillar (CAT) Disappoint Q4 Earnings Estimates? - Analyst Blog
Caterpillar Inc. (CAT), the mining and equipment behemoth, is set to release fourth-quarter 2014 financial results before the opening bell on Jan 27.
In the preceding quarter, Caterpillar reported a 15% increase in earnings to $1.72 per share on the back of continued cost management and operational execution despite a muted mining environment. The company delivered a positive earnings surprise of 29.32% in the third quarter, marking four consecutive quarters of positive earnings surprises, averaging 22.36%.
Factors to Consider This Quarter
Caterpillar’s sales continue to be affected by weak mining demand as mining companies continued to reduce their capital expenditures in 2014. However, so far in fiscal 2014, Caterpillar’s efforts to reduce costs along with continued deployment of lean manufacturing initiatives have helped in mitigating the effect of lower mining-related sales on its profits. In the fourth quarter, Caterpillar will continue to benefit from its extensive cost-saving programs across its global businesses and additional restructuring actions undertaken in 2014 to optimize its cost structure and improve its operational efficiency.
At the end of the third quarter, Caterpillar’s backlog was $19.7 billion, up from $19.3 billion at the end of the second quarter. The increase primarily came on the back of an early order program for rental machines in North America and Europe with expected delivery in 2015 and an increase in the backlog for reciprocating engines, partially offset by declines in the backlog for locomotives.
The Architecture Billings Index, which is considered a leading indicator of U.S. non-residential construction, has remained above 50 in the recent months, signaling robust conditions ahead for the construction industry. The improvement in the construction sector will provide support to Caterpillar’s revenues.
On the flipside, the recent slump in oil prices will have a negative impact on the energy and transportation segment that provides engine products and generators to power generation, industrial, oil and gas and transportation applications. Moreover, growth in the world's second-largest economy, China, has slowed to its weakest in 24 years, expanding 7.4% in 2014 compared with 7.7% in 2013. The slowdown in China will continue to have a toll on Caterpillar’s results.
Earnings Whispers
Our proven model does not conclusively show that Caterpillar is likely to beat the Zacks Consensus Estimate this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1, 2 or 3 for this to happen. Unfortunately, this is not the case here as elaborated below.
Zacks ESP: Caterpillar’s Earnings ESP, which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is currently +7.10%.
Zacks Rank: Caterpillar has a Zacks Rank #4 (Sell). We caution against Sell-rated stocks (#4 and 5) going into the earnings announcement.
Promising Stocks
Here are some companies from the industrial products sector that, according to our model, have the right combination of elements to post an earnings beat this quarter:
Century Aluminum Co. (CENX) has an earnings ESP of +7.81% and a Zacks Rank #1 (Strong Buy). It is expected to report results on Feb 19.
Noranda Aluminum Holding Corp. (NOR) has an earnings ESP of +50.00% and a Zacks Rank #1. It is expected to report results on Feb 18.
Brady Corp. (BRC) has an earnings ESP of +3.23% and a Zacks Rank #2 (Buy). It is slated to report results on Feb 19.
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