Wall Street didn’t like what it saw in Caterpillar’s second quarter earnings report...but there may still be some reasons for Big Yellow to feel optimistic this year.
Earnings per share were $2.83, well short of the $3.12 per share investors expected.
Total revenue of $14.43 billion also missed the mark projected by analysts. The company spent $1.4 billion on stock buybacks this year, leading to a slight increase in earnings per share even as net income slid, as there were fewer shares available on the market.
Quincy Krosby is the chief market strategist with Prudential Financial. She said that as an international corporation, Caterpillar's performance is a belwether of the overall global landscape.
There are a few factors that played into Caterpillar's earnings in the second quarter. Volatility in the energy sector, combined with fallout of a slower economy worldwide, and the ongoing U.S.-China trade war have all taken hits on Caterpillar’s bottom line.
A combination of tariffs, a slowdown in Chinese construction and competitive pressures from Chinese firms caused an 8 percent dip in Caterpillar’s Asia/Pacific sales in its second quarter.
Crude oil prices are down 17 percent over the past year, and natural gas is down 18 percent. Economic growth also is cooling off in Europe and Asia.
Krosby said there are some positive signs for Big Yellow moving forward. Caterpillar Chief Financial Officer Andrew Bonfield told investors in a call Wednesday that believes wrapping up ongoing restructuring and the energy sector picking up steam will help the company recover ground lost this quarter. The company is also anticipating demand will pick up for its unsold inventory.
Europe and China are also beginning to show some signs of their economic sluggishness bottoming out, Krosby said.
A resolution between America and China on their ongoing trade dispute could also give Caterpillar a big boost.
“So what Caterpillar needs is for the U.S. and China to resolve some of the issues that are keeping the two sides from negotiating and agreement on trade. If and when that happens, that would be a major boon for Caterpillar," Krosby said.
There is a caveat with all of this recovery looming on the horizon, however.
“The question is, will it be strong enough and in time enough for Caterpillar to reach their goal for the end of the year?” Krosby said.
Caterpillar currently projects hitting the lower end of its full-year earnings range of $12.06 to $13.06 per share. Krosby said the hope is that the company will meet or even exceed that range if energy spending picks back up.
Caterpillar stock closed at $131.91 on Wednesday, down $6.19 per share from Tuesday, a dip of about 4.4 percent.
Click here for an overview of Caterpillar's 2Q results.
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