Global Business

Caterpillar Earnings Beat Drives Stock up 5.9%

CFO Jim Umpleby calls the second quarter "impressive," noting the company "continued to control costs and generated higher profit margins."
Matthew HellerJuly 25, 2017

Caterpillar shares rose nearly 6% on Wednesday after the construction and mining giant reported better-than-expected quarterly earnings and raised its outlook for the full fiscal year.

For the second quarter, Caterpillar posted revenue of $11.33 billion, up 10% on the year-ago period, and net income of $802 million, up 45.8%. Excluding restructuring costs, earnings were $1.49 per share.

Analysts had predicted earnings of $1.26 per share on revenue of $10.93 billion.

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“Our team delivered an impressive quarter. As demand increased, we continued to control costs and generated higher profit margins,” Caterpillar CEO Jim Umpleby said in a news release.

“While a number of our end markets remain challenged, construction in China and gas compression in North America were highlights in the quarter,” he added. “Mining and oil-related activities have come off of recent lows, and we are seeing improving demand for construction in most regions.”

Each of Caterpillar’s three main divisions delivered a revenue increase — 11% in construction industries to $4.93 billion; 5% for energy and transportation to $3.94 billion; and 21% in resource industries to $1.76 billion.

Amy Campbell, director of investor relations for Caterpillar, said industry sales of excavators greater than 10 tons in China are expected to rise to about 55,000 this year, nearly double the 30,000 sold there last year.

“The demand in China for construction has been strong all year,” she told the Peoria (Ill.) Journal Star. “It has continued to surprise us with its strength.”

In trading Tuesday, Caterpillar shares jumped 5.9% to $114.54 as the company also raised its full-year guidance to $5.00 per share, from its previous outlook of $3.75 per share, citing “increased demand across many end markets and disciplined cost control.”

“With fundamentals improving across many of Caterpillar’s business units and geographies, we have become more positive on the shares,” Jim Corridore, a senior equity analyst for CFRA Research, told the Winston-Salem (N.C.) Journal.

But JPMorgan analyst Ann Duignan told CNBC that Caterpillar’s recent success may not translate into longer term growth because of the cyclical nature of its business.