Can Construction Industry, Resource Industry, Energy & Transportation Drive Growth For Caterpillar In Q2?

by Trefis Team
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Caterpillar (NASDAQ: CAT) is scheduled to publish its Q2 2018 results on July 30. The company has reported strong revenue growth from the Construction, Resource, Energy & Transportation segments in recent years, driven by the improved outlook of the Chinese economy, and commodity prices, and recovery in oil prices. This trend continued in the first quarter of 2018, with net revenues growing at 31% year-on-year to just under $13 billion. Construction segment revenue was up 38% year-on-year to just under $5.7 billion, while Resource segment revenue grew 31% year-on-year to $2.3 billion. In addition, Energy & Transportation segment revenue jumped by 26% year-on-year to just over $5.2 billion. Increased construction activities and rail traffic, coupled with a recovery in commodity prices, should drive Q2 results. Below we take a look at what to expect when the company reports earnings.

We have a $174 price estimate for Caterpillar, which is higher than the current market price. The charts have been made using our new, interactive platform. You can click here to modify the different driver assumptions, and gauge their impact on the earnings and price per share metrics.

Factors That May Impact Future Performance

The Construction Industry segment enjoyed a strong Q1, as margins improved as a result of improved construction activities. Growing affluence and population, together with improved construction activities in developing markets – such as China and India – should drive spending. In addition, the increased construction activity in North America should further boost segment revenue.

The Resource Industry segment enjoyed a strong Q1, as margins improved as a result of increased demand for fossil fuels in emerging economies. This resulted in strong order activity – increased replacement demand and demand for new equipment. Recovery in commodity prices should drive increased end-user demand, and emerging economies will continue to drive the growth of the Mining Industry.

Rising population and prosperity of developing nations should likely lead to a rise in demand for energy. We expect this increased demand for energy to increase long-term demand for engines and turbines. Further, the increase in rail traffic in North America should boost transportation & power generation sales.

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