How Should You Play the CAT Stock Ahead of Q3 Earnings Release?

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Caterpillar Inc. CAT is anticipated to record top and bottom-line declines when it reports third-quarter 2024 results on Oct. 30, before the opening bell.

The Zacks Consensus Estimate for third-quarter 2024 earnings has moved down 0.6% over the past 60 days to $5.33 per share. The consensus mark implies a 3.4% dip from the year-ago actual. The Zacks Consensus Estimate for revenues is pegged at $16.35 billion, suggesting a 2.7% year-over-year decline.

 

Zacks Investment Research
Zacks Investment Research

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Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

CAT’s Solid Earnings Surprise History

Caterpillar’s earnings outpaced the Zacks Consensus Estimates in the trailing four quarters, the average surprise being 10.95%. This is depicted in the following chart.

 

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

 

What the Zacks Model Unveils for the CAT Stock

Our proven model does not conclusively predict an earnings beat for Caterpillar this time around. The combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) increases the odds of an earnings beat. But that is not the case here.

Earnings ESP: CAT has an Earnings ESP of -0.94%. You can uncover the best stocks before they are reported with our Earnings ESP Filter.

Zacks Rank: The company currently carries a Zacks Rank of 3. You can see the complete list of today’s Zacks #1 Rank stocks here.

Factors Likely to Have Shaped CAT’s Q3 Performance

The Institute for Supply Management’s manufacturing index was below 50% in the July-September period, which indicates contraction. The New Orders Index also stayed below 50% as companies refrained from making capital investments. The impacts of this are expected to get reflected in Caterpillar’s third-quarter order levels. However, CAT’s substantial backlog of $28.6 billion at the beginning of the quarter, and higher aftermarket parts and service-related revenues are likely to have supported its third-quarter top line.

This is expected to have been negated by lower dealer inventories in the quarter, per normal seasonal trends in the third quarter. Caterpillar had seen unusually high dealer inventories in the third quarter of 2023, creating a challenging comparison for the quarter to be reported. Volumes are also expected to have been impacted by weak demand in some of its markets.

Overall, lower volumes and pricing are expected to have weighed on CAT’s top-line performance in the quarter under review.

Caterpillar has been witnessing moderate input cost inflation lately. We expect the company’s cost of sales to decline 7.1% in the third quarter due to favorable manufacturing costs. We, however, anticipate increased selling general and administrative (SG&A), and research and development (R&D) expenses related to strategic investments for the quarter. The projected year-over-year rise in SG&A and R&D expenses are at 5.7% and 8.9%, respectively, for the third quarter.