03 August 2020

Caterpillar’s Stock Crawls Lower Despite Upbeat Q2

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What’s happening: Shares of Caterpillar Inc. slid on Friday despite the construction and mining equipment maker reporting upbeat results for the second quarter.

What happened: Although Caterpillar witnessed a steep decline in demand for construction equipment due to the coronavirus crisis, the Deerfield, Illinois-based company still managed to beat expectations for the quarter.

The stock climbed close to 6% in the premarket session, following the release of quarterly results, but turned negative in regular trading, as investors focused on the company’s prospects.

How were the results: The heavy equipment maker posted a decline in sales and earnings for the second quarter, although both metrics came in ahead of market expectations.

  • Revenues plummeted 31% to $10.00 billion, but exceeded the consensus view of $9.40 billion.
  • Net income declined to $458 million, or 84 cents per share, from $1.62 billion, or $2.83 per share, in the same quarter last year. The figure surpassed the expectations of 64 cents per share.

Why it matters: Caterpillar reported a whopping 37% decline in construction equipment sales to $4 billion. The company’s North America sales contracted 40% in June, following a 36% decline in May. In resource industries, Caterpillar’s retail sales declined by 21% in June, after a 21% contraction in May.

Caterpillar said that dealers had reduced their machine and engine inventories by around $1.4 billion in the latest quarter. Chief Executive James Umpleby said during the earnings call, “We now anticipate that our dealers will reduce their inventories by more than $2 billion by year end.”

CFO Andrew Bonfield said that he did not expect a meaningful improvement in margins in the third quarter. Management refrained from issuing any guidance, citing the uncertainties related to covid-19.

How shares responded: Shares of Caterpillar fell 2.8% to close at $132.88 on Friday, after rising as much as 6% in pre-market trading following the release of quarterly results. The stock has gained over 14% in the past three months, although it is still down by 10% year to date.

What to watch: With Caterpillar’s performance expected to remain under pressure over the next couple of quarters, any positive news will likely support the stock.

The Markets Today

     

The euro will be in focus today, ahead of the manufacturing PMI report scheduled for release later in the day.

Context: The euro surged to its new two-year high level versus the greenback last week as a record contraction in the US GDP provided support to EU’s shared currency.

Details: The EUR/USD recorded a fresh high in more than two years, surging past the 1.1900 mark last week.

The US dollar continued its downward momentum with rising covid-19 cases in various American states adding to the uncertainty for the US economy.

The US also reported a 32.9% contraction in GDP for the second quarter, fuelling fears of the economy remaining under severe pressure for longer than was earlier expected.

US President Donald Trump’s tweet regarding a delay in the elections also added to uncertainties for the greenback.

Although the EUR/USD breached the $1.1900 level last week, the forex pair settled at $1.1779 on Friday. The pair recorded a 1.1% gain for the week.

What to watch: Investors await manufacturing PMI data from the Eurozone. The IHS Markit manufacturing PMI is expected to climb to 51.1 in July, versus a reading of 47.4 in June.

Investors will continue to monitor the covid-19 figures, with the total number of cases exceeding 18 million globally.

Other Markets: US indices trading closed higher on Friday, with the Dow Jones index, S&P 500 and the Nasdaq 100 up by 0.44%, 0.77% and 1.49%, respectively.

Support & Resistances
for Today

     

market snapshot

     

Futures at 0400 (GMT)

What else to watch today

     

Switzerland’s inflation rate and manufacturing PMI, Spain’s tourist arrivals, manufacturing PMI and vehicle sales, Italy’s manufacturing PMI, France’s manufacturing PMI and new car registrations, Germany’s manufacturing PMI, UK’s manufacturing PMI as well as the US manufacturing PMI, construction spending and ISM manufacturing PMI.

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