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Energy segment performance drags Caterpillar Q2 earnings

Caterpillar (NYSE: CAT) stock dropped above 5% in the pre-market trading after the Q2 earnings fail to impress the street. Lower demand from the oil and gas industry dented profits in the quarter. However, the company maintained its full-year outlook. In 2019, the stock price has increased by about 9%.

Caterpillar reported 3% revenue growth for Q2 2019, while profit fell 5%.

Sales improved 3% to $14.4 billion aided by growth from the construction and mining industry, offset by a weak performance from the oil and gas domain. Adjusted earnings came in at $2.83 per share hurt by a 12% drop in Energy division operating profit.

Revenue for the Q2 period came in line with analyst estimates of $14.44 billion, but adjusted EPS fell short of $3.12 expected by the street.

Talking about the rebound from the Construction segment, CEO Jim Umpleby said, “Sales and revenues increased this quarter, including a record performance from Construction Industries, which reflected our strong competitive position globally.”

Construction division is the major contributor to earnings for Caterpillar. The company saw improved demand from the North American region, which is a good sign for investors. Latin America reported flat sales due to reduced construction activity. European region sales drop was mainly attributed to currency headwinds. Lower demand from China continues to drag the Asia Pacific performance due to intense competition and pricing pressure.

2019 Guidance

Caterpillar didn’t make any revisions to the earnings outlook provided last quarter. On a GAAP basis, EPS is expected at $12.06-13.06. It also added that EPS can be expected at the lower end of the outlook provided. On an adjusted basis, earnings is projected in the range of $11.75-12.75 per share.

The company also added that the oil and gas industry will see improved demand in the latter half of the year which would be accretive to earnings. For the full-year period, the street is anticipating revenue of $56.54 billion, up 3.3% over the prior year, and adjusted EPS to come in at $12.24 compared to $11.22 reported last year.

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