Caterpillar Earnings Offer Little Guidance on Recovery Pace

© Reuters.

(Bloomberg) — Caterpillar Inc (NYSE:). said it sees “positive signs in certain industries and geographies” while failing to give reassurance that the worst of the hit from the coronavirus pandemic is behind the heavy-equipment maker.

The company reported third-quarter profit that topped analysts’ estimates, helped by lower-than-expected taxes. Caterpillar said it will discuss the outlook on its earnings call, according to a statement on Tuesday.

Caterpillar, which has been cutting costs to blunt the impact of still-sluggish orders in energy and mining, said machine sales fell 20% in September. The report comes as a resurgent virus hampers efforts to reopen economies, renewing concerns over global demand. The company’s stock was among the best performers in U.S. markets the past month on bets that sales were on the mend after virus shutdowns dented demand for its signature yellow machines.

“We’re encouraged by positive signs in certain industries and geographies,” Caterpillar Chief Executive Officer Jim Umpleby said in a statement. “We’re executing our strategy and are ready to respond quickly to changing market conditions.”

Adjusted profit for the three months through September was $1.34 a share, down from $2.66 in the same period a year earlier, the company said Tuesday in the statement. Analysts had estimated $1.13, based on the average of estimates compiled by Bloomberg.

Third-quarter revenue fell 23% from the same period a year earlier to $9.88 billion. The decline was mostly due to lower sales volume driven by lower end-user demand for equipment and services and the impact from changes in dealer inventories. Dealers decreased inventories more during the third quarter of 2020 than during the third quarter of 2019, the company said.

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Caterpillar expects operating margins to improve in the fourth quarter from the third quarter, according to the company’s presentation. It also said it expects dealers to reduce inventory levels by about $700 million in the fourth quarter, and by $2.5 billion for the year.

A bright spot for the rest of the year may be China, where government efforts to bolster growth in the wake of pandemic shutdowns are stoking demand. The heavy-equipment maker now expects an “up” year for sales in China’s construction market despite the shutdown in the first quarter, mainly helped by stimulus, according to Caterpillar Chief Financial Officer Andrew Bonfield.

“Obviously, the China government is stimulating the economy to try and recover post Covid, and it’s very strong, particularly in the excavation market,” said in a phone interview following the earnings report. Bonfield also said the company is in a “battle” for market share in China.

Deerfield, Illinois-based Caterpillar suspended its earnings forecast earlier this year because of uncertainty stemming from the coronavirus.

The earnings report was released before the start of regular trading in New York, where Caterpillar shares fell 2.1% at 8:19 a.m.

With the recent run-up in Caterpillar’s shares, the third-quarter results and four-quarter outlook “may not provide enough excitement for additional near-term performance,” Jefferies (NYSE:) analyst Stephen Volkmann said in a report. “While we see no major red flags, it appears any meaningful improvement in fundamentals will be pushed at least to 2021.”

©2020 Bloomberg L.P.


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