Caterpillar (CAT 118.26, -10.45, -8.12%) is trading lower this morning after reporting Q3
CAT is a major manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines, and diesel-electric locomotives. The company principally operates through its three product segments: Construction Industries, Resource Industries, and Energy & Transportation. The company also provides financing and related services through its Financial Products segment.
CAT's results are materially affected by economic conditions globally and regionally. Demand for its products tends to be cyclical and can be significantly reduced in periods of economic weakness and lower levels of government and business investment. The energy, transportation and mining industries are major users of CAT's products, including the coal, iron ore, gold, copper, oil, and natural gas industries. Customers in these industries frequently base their decisions to purchase on the expected future performance of these industries, which in turn are dependent in part on commodity prices.
Turning to the Q3 results, non-GAAP EPS jumped 47% yr/yr to $2.86, which was slightly market expectations. Revenue rose 18.4% yr/yr to $13.51 bln, which also was better than expected. In terms of guidance, Caterpillar reaffirmed its full year non-GAAP EPS guidance at $11.00-12.00.
CAT says most end markets continue to improve. Order rates and backlog remain healthy. In Q4, price realization and cost discipline are expected to more than offset higher material and freight costs, including tariffs. In fact, CAT told dealers of an upcoming price increase of +1-4% worldwide on machines and engines, effective in January 2019. It's a result of current industry factors and general economic conditions.
, Construction Industries sales rose 16% yr/yr to $5.683 bln, which was mostly due to higher sales volume for construction equipment. Sales increased in all regions except Latin America. In North America, demand was driven by oil & gas activities, including pipelines, and non-residential building construction activities. However, construction activities remained weak in Latin America.
Resource Industries segment sales rose 35% yr/yr to $2.638 bln, driven by higher demand for both mining and heavy construction equipment. Commodity market fundamentals remained positive, contributing to higher mining equipment sales. In addition, increased sales to heavy construction and quarry and aggregate customers were driven by positive global economic growth.
Turning to its Energy & Transportation segment, sales rose 15% yr/yr to $5.555 bln, driven by higher sales across all applications except Industrial. Oil & Gas sales benefited from higher demand in North America for well servicing and gas compression applications. Higher energy prices and growth in US onshore oil & gas drove increased sales for reciprocating engines. Power Generation sales improved across all regions, with the largest increases in North America and Asia/Pacific primarily for reciprocating engine applications, including data centers and power plants. Industrial sales were lower in EAME primarily due to economic uncertainty in a few countries in the Middle East.
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