Cat sales jump 20% in 2020: Record profit per share, but stock dives

There seemed to be a disconnect Monday, January 28: Caterpillar announced record profits per share for the fourth quarter 2018 and the full year, but its stock plummeted about 9 percent during the day.

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The company announced that sales and revenues were up 11 percent for the fourth quarter and up 20 percent for the full year. It also saw its highest adjusted profit per share in company history at $11.22 – a 63 percent increase over 2017.

“It was a great year for Caterpillar,” said Chief Financial Officer Andrew Bonfield in a company video. “…Fantastic performance across the whole company.”

However, Wall Street seemed to zoom in on a 4 percent decline in sales for its Construction Industries in the Asia/Pacific realm that the company said was “due to lower demand in China.” Some analysts also said Cat missed its quarterly earnings outlook and were concerned about the company’s 2019 outlook, which they also said forecast lower than expected earnings.

The big worry was that the economic slowdown in China was having a deeper effect. Stock prices of other companies that have declining Chinese sales have also dropped, such as Apple.

Despite Wall Street’s worries, Cat executives forecast more growth in 2019, but that growth will be tempered.

“Our outlook assumes a modest sales increase based on the fundamentals of our diverse end markets as well as the macroeconomic and geopolitical environment,” said Cat CEO Jim Umpleby in the company’s news release.

Bonfield said Cat would again achieve record adjusted profit per share in 2019, ranging from $11.75 to $12.75 per share.

“We expect still strong profit performance next year,” said Bonfield.

Since January 28, the stock has been surging back. After dropping from $136 a share on January 25 to $124 on January 28, the stock closed at $130 on February 1.

Bonfield said the company would be impacted by increased material costs from tariffs in 2019. But he added that there would be “some favorable price realization.” In other words, higher prices for Cat products would offset the higher material costs but not enough to hurt sales.

The company reported that it is also experiencing a backlog in orders for products. The fourth-quarter order backlog was at $16.5 billion, which is about $800 million lower than in the third quarter. But when comparing 2017 and 2018, the order backlog is up about $700 million. The company’s Construction Industries saw backlog increases, Cat reported.

The company reported increased sales of 17 percent in North America due to higher demand, primarily in oil and gas industries and in nonresidential construction.

As for shareholders, the company spent $5.8 billion for stock buybacks and dividend growth in 2018. The company has raised its dividend each year for 25 consecutive years, Bonfield noted.

Some other highlights from the company’s financial reports:

  • The company added 7,300 employees primarily due to increased demand; 3,200 of those jobs were in the United States.
  • Cat’s Construction Industries’ profit was $845 million in the fourth quarter, compared to 4Q 2017’s $837 million. “The increase in profit was a result of favorable price realization and higher sales volume, mostly offset by higher manufacturing costs, including material, labor and freight costs.”
  • The Resource Industries’ profit was $400 million in the fourth quarter versus $210 million in 2017 – a 90 percent rise. The segment includes the company’s mining products. Its largest sales increase was in the Asia/Pacific region, at 41 percent.
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