Caterpillar Keeps Climbing Even on a Downgrade

The Great Recession

This Cat apparently does have nine lives, and it’s already used seven of them. After six consecutive quarters in which Caterpillar’s earnings failed to meet plummeting expectations, Cat’s stock started to die each time then took a dead-cat bounce back to life. After its seventh quarterly fail in October, it only climbed higher.

Yet, no one even muses about that here in Wonderland where everything that goes down must come up. On October 23rd, when Caterpillar issued its third-quarter report, you would have thought Cat sales were maintaining a slow uphill crawl when, in fact, the big Cat was sliding downhill faster than the avalanching ground around it. Likewise, in the days thereafter as people digested the all-bad news, you would have thought the report was stellar:

Behind strong returns for shares of Intel and Caterpillar, the Dow Jones Industrial Average is up Friday afternoon….


Two days after its dismal report, Caterpillar and Intel contributed 25% to the market’s intraday rally. Yet, Caterpillar’s earnings were absolutely abysmal. It even slashed its forward outlook — again — due to deteriorating global growth prospects. Its reported earnings per share at $2.66 came in below grade from expectations of $2.87 that were already lowered due by the previous quarter’s of lowering forward guidance. Its revenue mired down at $12.8 billion versus the already swampy expectations of $13.4 billion. Year-on-year, revenue was down 6%. (Profit per share down 8%, and that was after $1.8 billion in share buybacks — a 7% shrinkage in outstanding shares!) But it’s stock climbed almost vertically.

The huge misses could not even entirely be blamed on Trump’s Trade Wars. Cat sales were down across the globe, not just in the US and China. In the US they were down largely due to the slowdown in shale oil; i.e., particularly fracking. (Oil-and-gas-related revenue sank 9%.) Sales related to construction businesses were also way down in the US (7% YoY). Mining equipment down 12%.

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