=Caterpillar (CAT) reported earnings on Thur 25 Jan 2018 (BMO)

Caterpillar beats by $0.38, beats on revs; guides FY18 EPS upside (mid-point of guidance is easily above expectations)

• Reports Q4 (Dec) earnings of $2.16 per share, excluding non-recurring items, $0.38 better than the Capital IQ Consensus of $1.78; revenues rose 34.7% year/year to $12.9 bln vs the $12.01 bln Capital IQ Consensus.
  • Co issues upside guidancefor FY18, sees EPS of $8.25-9.25, excluding non-recurring items, vs. $8.29 Capital IQ Consensus Estimate (Note the mid-point is easily above consensus)
• The increase in Q4 sales was primarily due to higher sales volume, mostly due to improved end-user demand
• In addition, favorable changes in dealer inventories contributed to increased sales volume
• The improvement in end-user demand was across all regions and most end markets. The favorable change in dealer inventories was primarily due to a decrease in the fourth quarter of 2016, compared to dealer inventories that were about flat in the fourth quarter of 2017

By segment...

• The largest sales volume increase was in Construction Industries, mostly due to higher end-user demand for construction equipment and the favorable impact of changes in dealer inventories
• Energy & Transportation's sales volume increased due to higher demand across all applications. Sales volume for Resource Industries increased due to higher end-user demand for equipment and aftermarket parts. Favorable price realization, primarily in Construction Industries and Resource Industries, also contributed to the sales improvement. Financial Products' revenues were about flat
• Sales increased across all regions with the largest increase in North America
• Sales improved 46% in North America primarily due to higher end-user demand for both equipment and aftermarket parts. Changes in dealer inventories were favorable as dealer inventories decreased in the fourth quarter of 2016 and increased slightly in the fourth quarter of 2017
• EAME sales increased 38% primarily due to higher end-user demand for equipment and favorable price realization
• Asia/Pacific sales increased 22% primarily due to higher end-user demand for construction equipment. About half of the sales improvement in Asia/Pacific was in China resulting from increased building construction and infrastructure investment
• Sales increased 39% in Latin America due to stabilizing economic conditions in several countries in the region that resulted in improved end-user demand from low levels, as well as favorable changes in dealer inventories

Back to its 2018 forecast...

• Caterpillar is beginning 2018 with strong sales momentum resulting from strong order rates, lean dealer inventories and an increasing backlog
• Additionally, there are positive economic indicators across most of the world and in many of the company's end markets
• Caterpillar is preparing its factories and suppliers to be ready for continued growth, while remaining focused on managing with a flexible and competitive cost structure that should enable the company to respond quickly if economic fundamentals change
• Construction Industries -- The company expects growth in 2018 with some tempering in the latter part of the year, largely due to anticipated seasonality of sales in China.
• Resource Industries -- The company believes that global economic momentum and increasing commodity prices are restoring miners' business confidence and financial health
• Energy & Transportation -- Sales into Oil and Gas applications are expected to increase in 2018, led by reciprocating engines for gas compression and well servicing in North America.