Caterpillar (CAT 126.04, -10.82, -7.91%) opened lower by 7.2% in
response to weaker than expected earnings. The early decline sent the stock to
trade back in the neighborhood of its 50-day moving average (127.74) for the
first time since the first week of January.
The manufacturer of heavy machinery reported below-consensus fourth quarter earnings of $2.55 per share on an 11.2% year/year increase in revenue to $14.34 bln, which was just shy of estimates. In addition to reporting light results, the company issued below-consensus guidance for fiscal 2019, expecting earnings between $11.75 and $12.75 per share.
In the company’s Construction Industries segment, sales in North America and Europe showed solid growth; sales in North America increased by 17.2% year/year to $2.75 bln while Europe, the Middle East, and Africa sales grew by 8.9% to $1.06 bln. Growth in North America was fueled by higher overall demand and higher dealer inventories while infrastructure, road, and non-residential construction fueled the growth in European sales.
Conversely, and partially offsetting the segment’s growth, sales in Latin America decreased by 4.6% to $374 mln while sales in Asia/Pacific fell 4.2% to $1.48 bln. The decrease in Latin America was owed to low construction levels while the decline in Asia was the result of weaker demand in China and unfavorable currency translations.
The Construction Industries segment recorded a profit of $845 mln, which represented year/year growth of 1.0%, thanks to favorable price realization and higher sales volume. Segment profit margin weakened by 100 basis points to 14.8%.
The Resource Industries segment saw double-digit sales growth in all geographical regions. Sales in North America grew 14.5% to $906 mln; Latin American sales increased 21.4% to $466 mln; Europe, the Middle East, and Africa sales grew 16.6% to $554 mln; and Asia/Pacific sales increased 41.4% to $785 mln. Higher demand for mining and heavy construction equipment fueled the growth in sales. Segment profit grew 90.5% to $400 mln while segment profit margin improved by 520 basis points to 14.3%.
Sales in the Energy & Transportation segment grew 11.5% year/year to $6.29 bln while segment profit grew 23.5% to $1.08 bln. Segment profit margin improved by 170 basis points to 17.2% due to higher sales volume.
Financial Products revenue increased 3.7% to $812 mln, but segment profit decreased 87.6% to $29 mln due in part to the impact of mark-to-market accounting in the fourth quarter and an increase in the provision for credit losses due to weakening in the Cat Power Finance portfolio. At the end of the quarter, the company's allowance for credit losses represented 1.80% of finance receivables, up from 1.33% of receivables one year ago.
Order backlog stood at $16.5 bln at the end of the quarter, down 4.6% quarter/quarter, but up 4.4% year/year.
The company said it expects to repurchase at least $750 mln worth of its shares during the current quarter after buying back $1.8 bln worth of shares during the fourth quarter.
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