Is Caterpillar (CAT) Likely To Deliver A Beat In Q1 Earnings?

The first- quarter 2017 earnings release of Caterpillar, Inc. (NYSE:CAT) is scheduled to be announced before the opening bell on Apr 25. It is a much-awaited event as the world's largest manufacturer of construction and mining equipment is often considered an economic bellwether.

Caterpillar’s results in the past few quarters, reflected a weak mining industry, low oil prices, a stronger U.S. dollar and China's economic woes. However, the company has persistently strived to cut down costs to counter these effects. In the last reported quarter, the company’s earnings remained flat while revenues declined 13% year over year. Let’s see how things are shaping up prior to this announcement.

Earnings Whispers

Our proven model shows that Caterpillar is likely to beat earnings in the to-be-reported quarter because it has the right combination of two key ingredients – a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold), which have a significantly higher chance of beating earnings.

Zacks ESP: Caterpillar’s Earnings ESP is +16.67% as the Most Accurate estimate of 70 cents is pegged higher than the Zacks Consensus Estimate of 60 cents. A positive ESP serves as a meaningful and leading indicator of a likely positive earnings surprise. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Caterpillar sports a Zacks Rank #1. The combination of the company’s favorable Zacks Rank with a positive ESP makes us confident of an earnings beat.

Notably, the stocks having a Zacks Rank #4 and 5 (Sell-rated stocks) should never be considered going into an earnings announcement, especially when the company is seeing negative estimate revisions.

Surprise History

In the last quarter, Caterpillar’s earnings beat the Zacks Consensus Estimate by 27.69%. Going by the earnings surprise history, Caterpillar beat estimates in the trailing four quarters, leading to an overall positive average surprise of 13.64%.

Caterpillar, Inc. Price and EPS Surprise

What's Driving the Better-Than-Expected Earnings?

Caterpillar reported a 1% drop in February sales. Despite growth still lingering in the negative territory, this marked the company’s narrowest decline since Dec 2012. This was also an improvement from the 8% dip witnessed in Jan 2017.

The company will benefit from the recent pick up in construction-related activity. Construction in Asia Pacific is improving consistently and the EAME construction industry has also witnessed positive growth lately. Additionally, leading indicators of U.S. non-residential construction signal robust conditions ahead for the domestic construction industry. The ABI has been at 50 or better for 20 of the last 24 months indicating sustainable growth in architectural activity.

To counter the effect of weak end markets on the top line, Caterpillar remains committed to its goal of reducing costs, such that the decline in operating profit is no more than 25–30% of the fall in sales and revenues. In line with this, the company recently announced that it will close its Aurora plant and shift production to other sites.

Price Performance

In the past three months, the Caterpillar stock has outperformed the Zacks categorized Machinery – Construction/Mining industry.

The company has delivered a return of 1.1%, while the industry gained 0.5%.

Some Other Promising Stocks

Caterpillar is not the only company looking up this earnings season. Here are some other stocks in the industrial products sector that you may want to consider as our model shows they have the right combination of elements to post an earnings beat this quarter:

Deere & Company (NYSE:DE) has an Earnings ESP of +5.03% and carries a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO Corporation (NYSE:AGCO) has an Earnings ESP of +5.88% and carries a Zacks Rank #2.

Avery Dennison Corporation (NYSE:AVY) has an Earnings ESP of +2.89% and a Zacks Rank #2.

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