3 Things You Can’t Miss in Caterpillar Inc.’s Upcoming Earnings Report

The Presentation inside:

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3 Things You Can’t Miss in Caterpillar Inc.’s Upcoming Earnings Report

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1 Backlog value: a key indicator of future potential revenue

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Story so far Caterpillar’s backlog is declining rapidly – In Q2, it fell 10% sequentially and 23% year over year. Half the year-over-year decline was in its construction industries division. Prices of key commodities like oil, coal, and iron ore have hit multi-year lows in recent months. As a result, companies in these sectors are aggressively cutting down on capital expenditures.

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What you should watch Backlog: I’m expecting another double-digit slump in Q3. With mining and oil and gas already weak, a big drop in construction backlog will be a double whammy. Order rates: Backlog could reach dangerously low levels and revenues could dry up if orders for Caterpillar’s equipment don’t pick up soon.

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2 Signs of stress in the North American construction market

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A bleak picture Data source: Caterpillar retail sales statistics. Chart by author Caterpillar’s construction-equipment sales are headed lower

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What you should watch While downgrading its outlook last month, Caterpillar mentioned that “construction equipment sales are well below prior peaks in North America.” North America is Caterpillar’s largest market, and also among its strongest. So any sluggishness will bode ill for the company, especially when international markets are already weak.

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3 Restructuring and growth plans

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The big plan In September, Caterpillar revealed massive restructuring plans across all business segments that “could impact more than 20 facilities” and 10,000 people around the world. 

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What you should watch While Caterpillar could take the biggest bite out of mining, closure of any construction or energy and transportation facilities could mean more pain ahead for the company. Expected savings, after accounting for restructuring costs. R&D: Will Caterpillar spend close to 2012 record levels this year as planned earlier? What areas/products is it investing in, and how will it position the company for future growth?

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