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Caterpillar Stock Could See More Sales and Earnings Pressure

Caterpillar stock

Caterpillar (NYSE: CAT) stock price plummeted sharply since the beginning of this year due to the trader’s concerns over slowing Chinese demand. The revenue and earnings miss for the fourth quarter added to the CAT share price selloff. The company has also presented poor sales and earnings outlook for fiscal 2020.

Caterpillar stock plunged close to 12 per cent in the last month. CAT share price is currently trading around $130, up from the 52-weeks low of $115 a share. The threat of coronavirus could create an additional dent on its financial numbers, according to market analysts. This is because China is one of the largest markets for CAT.

CAT Caterpillar Inc. daily Stock Chart

Fourth Quarter Results Enhanced Bearish Sentiments for Caterpillar Stock

The company missed a fourth-quarter revenue estimate by $280 million and $0.40 per share, respectively. Its fourth-quarter revenue of $13bn declined by 8% from the year-ago period. Its full-year revenue of $54bn dropped modestly from last year’s revenue of $53bn.

On the positive side, CAT generated a strong margin and earnings performance considering a huge decline in revenues. Its fourth-quarter earnings per share of $1.97 increased from last year’s earnings of $1.78 per share. The earnings growth is attributed to cost cuttings, share buybacks and investments in high margin areas.

Caterpillar Stock Could See...

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,” said Umpleby.

Outlook is Pessimistic

Caterpillar Stock Could See...

The company expects its 2020 revenue and earnings to decline from fiscal 2019. It anticipates 2020 profit in a range of $8.50 to $10.00 per share. The company had generated earnings per share of $10.74 in 2019. CAT’s cash returns are safe considering the cash generation potential. It recently raised the quarterly dividend by 20%. The cash flows are offering a complete cover to dividend payments. “We expect continued global economic uncertainty to pressure sales to users in 2020 and cause dealers to further reduce inventories,” said Umpleby.

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Based in Saudi Arabia, Siraj has a strong understanding of and passion for accounting and finance. He has worked for international clients for many years on several projects related to the stock market, equity research and other business, accounting and finance related projects. Siraj is a published financial analyst on the world's leading websites including SeekingAlpha, TheStreet, MSN, and others.