Earnings Preview: What to expect from Caterpillar’s Q3 results?

With the Chinese economy showing signs of a slowdown, the ongoing trade war between the US and China has made things tougher for companies due to an increase in costs for raw materials that are imported from China. Companies in the US industrial sector which has more exposure to China are expected to see muted growth in the near future.

Caterpillar (CAT) is scheduled to announce its third quarter results before the market opens on October 23. Shares of the company had dropped more than 21% from its 52-week high level of $173.24 recorded in January 2018. Investors will be interested to know whether the company is able to beat street consensus for Q3 and post sequential growth for both top and bottom line.

On a year-over-year basis, analysts expect third quarter earnings to be up 46% to $2.85 per share and revenue to increase by 16.4% to $13.29 billion. Last quarter, Caterpillar reported solid results with sales increasing 24% to $14 billion and earnings doubling to $2.97 per share over the prior year. As a result, the company raised its earnings outlook for fiscal 2018.

From a segment point of view, key segments to watch will be Construction and Energy & Transportation. Both these divisions bring in lion’s share of profit to the company. On the sales front, both the segments recorded above 20% growth in the second quarter. Resource Industries also surged 38% last quarter due to solid demand for its equipment from mining customers.

Caterpillar stock climbs on upbeat results and boosted outlook

Another important metric to track would be the order backlog. Last quarter, the company reported a backlog of $17.7 billion, which is an increase of $2.9 billion over the prior year period. If the backlog in the third quarter improves, it is a clear sign that the company’s growth is on track for the near future despite headwinds like tariff wars, increasing raw material prices and the slowdown in the Chinese region.

On the trailing-twelve-month basis, Caterpillar’s price-to-earnings stands at 15.60 lagging much behind the sector average of 24.43.

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