Caterpillar Crushes Expectations and the Stock Is Going Nuts

Oct. 25, 2014

Adjusted earnings jumped to $1.72 per share, which was much stronger than the $1.35 expected by analysts. Revenue increased to $13.55 billion, which was healthier than the $13.20 billion expected.

As a global supplier of construction and mining equipment, Caterpillar is considered a reliable bellwether of economic activity.

“We’re pleased with the third-quarter profit improvement considering world economic growth remains slower than we’d like,” CEO Doug Oberhelman said. “We are confident that, when we see more significant economic growth around the world, our consistent focus on operational performance will have prepared us to deliver even better results.”

The stock is up 5%.

Management offered some perspective on the world economy as it sees it. From the report:

From an economic perspective, we believe there is a reasonable likelihood that world economic growth could improve in 2015. In developed countries, growth-oriented monetary policies should support continued modest economic improvement. In addition, we believe there is potential for increased investment in infrastructure in countries such as the United States, India and Turkey.

In developing countries, several governments raised interest rates or constrained liquidity in 2013 to control inflation or protect their exchange rates, and these measures have led to slower growth in 2014. More recently, interest rates in many developing countries have stabilized and we saw the first monetary policy easing in the third quarter of 2014.

Despite cautious optimism for improved global economic growth, significant risks and uncertainties remain that could temper growth in 2015. Political conflicts and social unrest continue to disrupt economic activity in several regions, in particular, the Commonwealth of Independent States, Africa and the Middle East. The Chinese government’s push for structural reform is slowing growth, and the ongoing uncertainty around the direction and timing of US fiscal and monetary policy actions may temper business confidence. As a result, our preliminary outlook for 2015 expects sales and revenues to be flat to slightly up from 2014.

“At this point, our view of 2015 sales and revenues isn’t significantly different than 2014,” Oberhelman said. “Our order backlog was up a little in the third quarter and was slightly higher than at this point last year. We’re hopeful that economic growth will improve in 2015 but are mindful of the uncertainties and risks.”

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