Industrial Earnings Ahead: Caterpillar to Report Tomorrow Morning

Industrial giant Caterpillar reports earnings this week. Here’s a look at what might be expected from the heavy equipment maker’s quarterly report. truck in the distance
3 min read

There has been more uncertainty regarding trade and economic growth these past few months. This week, investors might get an idea of whether this is translating into broader economic impacts when heavy equipment maker Caterpillar (CAT) reports earnings before the open on Tuesday, Oct. 23. 

For Q3, CAT is expected to report adjusted EPS of $2.85 on revenue of $13.29 billion, according to third-party consensus analyst estimates. In the same quarter last year, adjusted EPS was $1.95 on revenue of $11.41 billion. 

Naturally, tariffs and the global trade tensions have been a topic of concern among many analysts. During the company’s last report, Joe Creed, who was interim CFO at the time, said he expects tariffs would add between $100 million and $200 million to material costs in the second half of the year. 

At the same time, CEO Jim Umpleby said that they hadn’t seen any material impact on CAT’s business in China due to trade tensions. It has been a few months since then and the situation has evolved, so management might provide an update on whether or not much has changed for them.   

While tariffs have added some headwinds, management cited several positives that they expect will offset tariffs and higher material costs. The first being that CAT had implemented price increases on July 1 this year. The company has also focused on what it calls its “Operating & Execution Model”, which is partially designed to maintain structural cost control. 

Overall, analysts are still widely positive on the economic backdrop for the company. Global growth remains strong in many major economies like the U.S. and China, although opinions vary widely on how long this level of growth can be maintained. Many countries, including the U.S. and China are still focused on infrastructure spending as well. 

And almost across the board, commodity prices have stabilized and are well off their lows a few years back, which has aided the recovery in CAT’s mining, farming, and oil and gas businesses. In oil and gas and mining, CAT said in July that they were seeing “strong demand and taking orders for delivery well into 2019.” When it reported Q2 results, CAT’s backlog was at $17.7 billion, up slightly from $17.5 billion in Q1 2018.

Down at the Lows. CAT has rallied substantially from its 2016 low of $56.36, but the stock has pulled back a bit in 2018. Outside of a few green days, CAT has dropped rapidly over the course of October, going from a slight gain on the year to about a 17% decline. Chart source: thinkorswim® by TD Ameritrade. Not a recommendation. For illustrative purposes only. Past performance does not guarantee future results.

Around CAT’s earnings report, options traders have priced in a 5% stock move in either direction, according to the Market Maker Move indicator on the thinkorswim® platform. Implied volatility was at the 81st percentile as of this morning.

In short-term options trading at the Oct. 26 weekly expiration, call volumes have been lighter in recent trading and there’s just been a smattering of activity from the 133 strike price up to the 138 strike. On the put side, however, there was a lot of action during Friday’s session. 

21,505 contracts traded at the 132-strike put and 15,470 contracts traded at the 130-strike put, versus open interest of 274 contracts and 111 contracts, respectively. This was largely due to several large block trades—three orders alone accounted for 28,149 of the volume traded at those strikes.  

Looking further out at the Nov. 16 monthly expiration, calls have been active at the 145 strike price and activity has been picking up at the 135 and 140 strikes as well. For puts, recent trading has been concentrated at the 130 and 135 strikes. There is also a sizable amount of open interest at the 145-strike put with 16,589 contracts.

Note: Call options represent the right, but not the obligation, to buy the underlying security at a predetermined price over a set period of time. Put options represent the right, but not the obligation to sell the underlying security at a predetermined price over a set period of time.

Good Trading,



Call Us
Probability analysis results from the Market Maker Move indicator are theoretical in nature, not guaranteed, and do not reflect any degree of certainty of an event occurring.

TD Ameritrade and all third parties mentioned are separate and unaffiliated companies, and are not responsible for each other’s policies or services.

Inclusion of specific security names in this commentary does not constitute a recommendation from TD Ameritrade to buy, sell, or hold.

Market volatility, volume, and system availability may delay account access and trade executions.

Past performance of a security or strategy does not guarantee future results or success.

Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. Options trading subject to TD Ameritrade review and approval. Please read Characteristics and Risks of Standardized Options before investing in options.

Supporting documentation for any claims, comparisons, statistics, or other technical data will be supplied upon request.

The information is not intended to be investment advice or construed as a recommendation or endorsement of any particular investment or investment strategy, and is for illustrative purposes only. Be sure to understand all risks involved with each strategy, including commission costs, before attempting to place any trade. Clients must consider all relevant risk factors, including their own personal financial situations, before trading.

This is not an offer or solicitation in any jurisdiction where we are not authorized to do business or where such offer or solicitation would be contrary to the local laws and regulations of that jurisdiction, including, but not limited to persons residing in Australia, Canada, Hong Kong, Japan, Saudi Arabia, Singapore, UK, and the countries of the European Union.

TD Ameritrade, Inc., member FINRA/SIPC. TD Ameritrade is a trademark jointly owned by TD Ameritrade IP Company, Inc. and The Toronto-Dominion Bank. © 2019 TD Ameritrade.

Scroll to Top