Yahoo Autos Caterpillar (CAT) Up 17.1% Since Last Earnings Report: Can It Continue?
A month has gone by since the last earnings report for Caterpillar (CAT). Shares have added about 17.1% in that time frame, outperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Caterpillar due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Caterpillar's Q4 Earnings & Revenues Beat Estimates
Caterpillar reported fourth-quarter 2020 adjusted earnings per share of $2.12, which beat the Zacks Consensus Estimate of $1.46 by a margin of 45%. However, the bottom line declined 22% from the prior-year quarter’s adjusted earnings per share of $2.71 as sales fell across all segments and geographies due to weak demand.
Including one-time items, Caterpillar’s fourth-quarter earnings per share was $1.42, reflecting a decline of 28% from the prior-year quarter figure of $1.97.
Weak Demand Across All Regions Weighs on Revenues
The company’s fourth-quarter revenues of $11.24 billion surpassed the Zacks Consensus Estimate of $11.18 billion. However, the top line declined 15% from the year-ago quarter on lower sales volume. This was primarily due to low end-user demand amid the coronavirus pandemic and the impact of changes in dealer inventories.
The company witnessed decline in sales across the board. Sales in North America slumped 21% followed by a decline of 11% in EAME. Sales in Latin America and Asia Pacific were down 9% and 8%, respectively.
Margins Dip on Lower Sales
In fourth-quarter 2020, cost of sales decreased 15% year over year to $7.8 billion. Manufacturing costs were lower in the quarter aided by lower material and period manufacturing costs, favorable impact from cost absorption and cost-reduction actions implemented in response to lower sales volumes. Higher warranty expense negated some of these gains.
Gross profit declined 14% year over year to $3.45 billion on lower sales. Gross margin was 30.7% in the quarter under review compared with 30.6% in the prior-year quarter.
Selling, general and administrative (SG&A) expenses decreased 5% to around $1.2 billion. Research and development (R&D) expenses declined 3% to $374 million from the prior-year quarter figure of $386 million. Both SG&A and R&D expenses in the quarter benefited from reduced short-term incentive compensation expense and other cost reductions owing to lower volumes. Higher labor and benefits costs remained hindrances.
Operating profit in the quarter plunged 25% year over year to $1.38 billion, primarily dragged down by lower sales volume. Gains from favorable manufacturing costs, reduced SG&A and R&D expenses were not adequate to mitigate this impact. Operating margin was 12.3% in the reported quarter, down 180 basis points from the prior-year quarter.
Segment Performance
Machinery and Energy & Transportation (ME&T) sales fell 15% year over year to $10.6 billion in fourth-quarter 2020. Construction Industries sales were down 10% year over year to $4.5 billion due to lower sales volumes on account of reduced end-user demand and the impact of changes in dealer inventories.
Sales at Resource Industries declined 9% year over year to around $2.2 billion on lower sales volume, primarily due to lower end-user demand for equipment and aftermarket parts.
Sales of Energy & Transportation segment in the quarter were around $4.8 billion, reflecting a decline of 19% from the prior-year quarter. The downside was on account of lower sales across all applications.
The ME&T segment reported operating profit of $1,306 million, reflecting a slump of 25% from the year-ago quarter. The Energy & Transportation segment’s operating profit plunged 41% year over year to $687 million. The Construction Industries segment witnessed a year-over-year decline of 4% in operating profit to $630 million. The Resource Industries segment’s operating profit increased 5% year over year to $273 million in fourth-quarter 2020.
Financial Products’ revenues went down 12% to $743 million from the prior-year quarter. Financial Products' profits were $195 million in the reported quarter compared with $210 million in the year-ago quarter.
