Find Me A Silver Lining (Other Than Margins) In These Caterpillar Numbers

Caterpillar served up an underwhelming 2020 profit forecast on Friday, which isn’t surprising.

Just take a look at commodity prices and then consider that the outlook for the global economy remains tenuous amid ongoing trade uncertainty. That’s really all you need to know when it comes to assessing the near-term fortunes of a bellwether that makes excavation equipment.

“We expect continued global economic uncertainty to pressure sales to users in 2020 and cause dealers to further reduce inventories”, CEO Jim Umpleby said, adding that the company aims to be nimble – or as nimble as you can be when you build heavy machinery, I guess.

CAT sees profits in 2020 of $8.50 to $10.00 per share. That trails the average estimate ($10.55).

The shares had run for four consecutive months as optimism around an imminent inflection in the global economy tied to trade progress propelled growth expectations. But January has been a different story entirely. This is the worst month for the stock since August, when tit-for-tat tariff escalations between Donald Trump and Beijing kicked off a recession scare.

Q4’s numbers actually look ok. Operating margins expanded 100bps YoY for the period. For the full year, margins were 15.4% versus 15.2% for the full year 2018. You can thank that for adjusted EPS that came in better than even the most optimistic estimate from Wall Street. Sales fell in 2019.

“While sales declined modestly in 2019, we delivered an operating margin and free cash flow consistent with our long-term targets and continued to invest in services and expanded offerings”, Umpleby went on to say Friday, before touting how much has been returned to shareholders.

In 2020, the company sees end-user demand falling between 4% and 9% and dealer inventories down between $1 billion and $1.5 billion.

CFO Andrew Bonfield spoke to Bloomberg over the phone, apparently, and said capex will be around $1.2 billion this year. It was $1.1 billion in 2019. So, again, nothing shouts “optimism”.

Although analysts who cover CAT can probably find something (or maybe even plenty) to like, the bottom line from a macro perspective is that this just isn’t very inspiring, even as it’s not surprising.

And speaking of not very inspiring, heavy-equipment sales fell 5% in December.

Womp, womp.


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