Quite a stark change of events – yesterday the Dow was the leader with IBM's stock buyback, Caterpillar's strength, along with the moves up in the telecom giants…while the NASDAQ stunk on the back of Apple. Today the laggard is the leader, and vice versa. This morning Caterpillar (CAT) reported, and it's a rare negative reaction as some worries about China are creeping in. The actual report was quite good – but these are forward looking worries. Ironically, the company is citing strength in North America to offset weakness in China and Brazil. That's a switcheroo! For all the focus on China, it was interesting to note that China only represents 3% of current sales.
- Caterpillar has been on such a huge run in recent years — nine straight quarters of earnings growth — that any hint of weakness can hurt. Despite another earnings beat ($2.37 versus $2.13) and guidance raise by Caterpillar on Wednesday, investors are focused on the company’s statements about slower growth in China and other parts of the developing world. Revenue of $15.98 billion fell below Wall Street expectations for $16.22 billion.
- “Sales of construction equipment in China have been weaker than we previously expected, and we have revised our forecast down in China. While we have seen some evidence of improvement in Brazil, it is not occurring as fast as we expected, and we have also revised our full-year expectations down for Brazil,” Caterpillar said in a statement. The company added that “stronger sales in North America are expected to about offset reductions in China and Brazil.,” but that’s clearly not assuaging investors’ concerns.
As for the actual report
- The company generated $1.59 billion net income, or $2.37 per share, during the quarter. That's up from last year's $1.23 billion net income, or $1.84 per share. The Peoria, Ill., firm said Wednesday its revenue grew 23 percent to $15.98 billion from last year's $12.95 billion.
- On average, the analysts surveyed by FactSet expected quarterly earnings per share of $2.13 on revenue of $16.18 billion.
- Caterpillar said it now expects to generate earnings per share of $9.50 in 2012. That's up from a previous prediction of $9.25, but Caterpillar didn't increase its revenue forecast.
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