CAT Letting Us Down Easy? Opaque Guidance Cuts At CAT’s Analyst Meeting

Takeaway: $CAT cut 2012 and 2015 guidance without a lot of specifics. Management may be trying to lower expectations into 3Q results and guidance.

 

 Letting Us Down Easy:  Opaque Guidance Cuts At CAT’s Analyst Meeting


  • 2012 Guidance Cut?:  Management hinted that 2012 sales would "come off" by about $2 billion.  That is not positive for 3Q and 4Q sales and EPS.  This feels like management is trying to lower expectations gradually so 3Q earnings and guidance are not too surprising.  We will be watching to see if consensus estimates come down for 2H 2012 and 2013.
  • 2015 Guidance Cut: We are not sure that a guidance outlook into 2015 is particularly relevant, but it does appear that CAT is trying to lower expectations.  Management insisted that the cut from $15-$20 in 2015 EPS to $12-$18 in 2015 EPS was not a guidance cut.  We do not yet follow that logic, but note that the range is wider.
  • Expecting a Downturn? CAT seems to be expecting an end market downturn and seemed to feel defensive about being prepared for it. Aside from excess inventories and recently added capacity, I guess CAT is “prepared.”
  • “The Company Is In Cyclical Businesses”:  CAT’s cyclicality is a key part of our thesis, which is that you shouldn’t buy cyclical companies at peak margins and sales.  Mining capital spending should be a cyclical, sub-GDP growth industry.
  • Chinese Construction Off 40%: That is not a number I have heard before, but it is pretty spectacular and is consistent with what we have seen in Chinese construction materials prices.
  • CAT Overview: Please see our more detailed review of CAT in our Black Book and Conference call at CAT’s Deep Cycle and Flash CAT Call Replay.

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