Replies to post #14707 on The Rising Influence of Rising Affluence

[DewDiligence]

Barron’s cover story is on…CAT (naturally):

http://www.barrons.com/articles/caterpillar-stock-revs-up-1493436543

Cat is digging its way out of a deep rut. That’s a promising sign for U.S. hard hats and an opportunity for stock investors. This past week, Caterpillar trounced Wall Street forecasts for its first-quarter financial results. Shares climbed 8% on the week to close over $102, their first return to triple digits since December 2014.

Political partisans can debate whether to credit President Donald Trump: Caterpillar is benefiting from a rebound in commodity prices that began long before Election Day, and from strong orders in China, but on its earnings call, the company also highlighted a rise in quote requests from U.S. customers encouraged by “pro-business policy in regards to infrastructure and tax reform,” and said pipeline projects that had previously been gummed up in the permitting stage are suddenly moving ahead.

Quotes aren’t orders, so it’s too early to call that a Trump win. But perhaps no company in the U.S. is better positioned for the president’s policy wish list.

I remain skeptical for the reasons mentioned in #msg-130823331 and others. CAT makes heavy exclusions to non-GAAP EPS from "restructuring" costs, which are actually a recurring item for most cyclical companies. Moreover, CAT's performance in China (cited by Barron's in the excerpt above) has been up and down and up and down over the past decade or so; it seems unrealistic to think it will go straight up.

[DewDiligence]

CAT—(+5%)—raises 2017 guidance again:

https://finance.yahoo.com/news/caterpillar-reports-second-quarter-2017-113000006.html

As a result of increased demand across many end markets and disciplined cost control, Caterpillar is raising its 2017 outlook.

…In April 2017, Caterpillar provided an outlook range for full-year 2017 sales and revenues of $38 billion to $41 billion with a midpoint of $39.5 billion. The company is raising its full-year 2017 expectations for sales and revenues to a range of $42 billion to $44 billion with a midpoint of $43 billion.

That’s a very substantial 9% increase at the midpoints of the ranges. (You would think investors could figure out that a range of $42-44B has a midpoint of $43B, LOL.)

Due to CAT’s high operating leverage, the ~9% revenue boost in the latest guidance (compared to the old guidance) produces a huge increase in GAAP and non-GAAP EPS. However, note that the large restructuring costs are excluded from non-GAAP EPS—something that I have questioned in previous posts on this board given the cyclical nature of the business.

For the full year of 2017, Caterpillar expects profit per share [i.e. GAAP EPS] of about $3.50 at the midpoint of the sales and revenues outlook range, or adjusted profit per share [non-GAAP EPS] of about $5.00. The previous outlook for 2017 profit was about $2.10 per share at the midpoint of the sales and revenues outlook, or adjusted profit per share of about $3.75.

The company now expects to incur about $1.2 billion of restructuring costs in 2017. The outlook does not include potential mark-to-market gains or losses related to pension and other postemployment benefit (OPEB) plans.