Caterpillar Inc. reported second-quarter adjusted earnings per share that rose from a year ago, and more importantly from the previous quarter, because former Chief Financial Officer Brad Halverson’s projection in April that adjusted profit per share had peaked proved false.
Shares of the maker of heavy equipment used for mining, agricultural and the energy markets CAT, +0.00% had run up as much as 2.9% in intraday trade Monday, before paring gains to be up 0.6% in afternoon trade.
The company reported before the open a second-quarter net profit that rose to $1.71 billion, or $2.82 a share, in the same period a year ago, from $802 million, or $1.35 a share a year ago, and from $2.74 a share first quarter.
Excluding non-recurring items, adjusted profit per share rose to $2.97 from $1.49 last year and $2.82 a share last quarter. Read more about Caterpillar earnings.
That came as a surprise to Wall Street analysts, because then-CFO Halverson had caused a stir after the company reported first-quarter results on April 24. He said the full-year profit outlook assumed that first-quarter adjusted EPS “will be the high watermark for the year,” and the stock swung from a gain of as much as 4.6% to a loss of 6.2%.
The average estimate of the 18 analysts surveyed by FactSet was for a sequential decline in adjusted EPS to $2.75.
After Halverson’s peak-earnings outlook, Caterpillar had said on May 4 that his previously announced plan to retire sometime this year would be effective May 4.
Tariffs and trade tensions no big whoopConcerns that Caterpillar would be hurt by the recent imposition of tariffs and a burgeoning trade war, since more than half of the company’s revenue is derived from overseas markets, were also assuaged.
The company said it has assumed, that for the second half of the year, that tariff-related costs would be $100 million to $200 million, but Caterpillar still raised its full-year profit outlooks as it expects a mid-year price increase to offset most of the costs.
And Interim CFO Joseph Creed said in the post-earnings conference call that he did not see a negative impact from the trade tensions with China on second-quarter results, as “business in China continues to be strong,” according to a transcript provided by FactSet.
The company now expects 2018 adjusted EPS of $11 to $12, up from its previous guidance range of $10.25 to $11.25.
New $10 billion buyback program is comingSeparately, the company said it bought back $750 million worth of stock in the second quarter after buying back $500 million worth in the first quarter, and expects to spend about the same amount on repurchases in the second half of the year as it did in the first half.
With the second-half repurchases, Caterpillar will have spent about $7 billion of the $10 billion buyback program announced in 2014, that is set to expire at the end of this year.
At that point, Caterpillar will start a new $10 billion repurchase program, effective Jan. 1, 2019, with no expiration date.
Caterpillar shares have shed 9.1% year to date, while the SPDR Industrial Select Sector exchange-traded fund XLI, -0.47% has inched up 0.3% and the Dow Jones Industrial Average DJIA, -0.36% has gained 2.7%.
