Caterpillar Q3 Earnings: What To Expect

Caterpillar (NYSE: CAT) is scheduled to report its Q3 earnings on October 24, and we expect a low single digit increase in its overall sales. We expect Caterpillar’s construction sales from China to continue to increase due to government support for infrastructure projects in the region. We also expect the company’s construction sales from North America and Europe to improve in the quarter due to increases in private investment and improvement in macroeconomic factors. Commodity prices have moved up in the last 6 months, and we expect that to help Caterpillar improve its mining sales. Additionally, after-sales products should continue to increase driven by aging of machinery. On the other hand, crude oil prices have remained below $50 per barrel, which could exacerbate pricing pressure. Accordingly, we are expecting a slight decline in Caterpillar’s energy and transportation sales.

Construction and Resource Sales May Improve

Construction equipment sales contribute nearly 40% of Caterpillar’s overall revenues. The company’s construction equipment sales have been increasing in the past few quarters driven by government support for construction activities in China and an increase in private investments in North America. Although China’s economic growth has slowed down over the last few years, the construction segment is still seeing strong growth due to government support for infrastructure projects. This should continue to boost Caterpillar’s construction sales from China this quarter as well. The company’s construction business in Europe is also expected to improve this quarter as macroeconomic conditions in Europe have generally improved over recent months. The construction production index, which measures monthly changes in price-adjusted construction output, has seen improvements over the last six months, which bodes well for construction equipment sales. Lastly, the North American construction industry environment is also improving due to growth in private investments driven by an improved business sentiment.

Energy, Transportation Weakness To Continue

Caterpillar’s energy and transportation segment revenues have been under pressure in the last few years due to the continued downturn in the oil industry. The company’s energy operations closely correlate with North American oil and gas infrastructure and production. Oil prices remained below $50 per barrel for the most part during Q3 despite the cap on oil supply by OPEC countries. This has resulted in increased pricing pressure for Caterpillar and its peers. We expect the company’s energy and transportation segment earnings to see marginal declines in the quarter.

See our complete analysis for Caterpillar

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