Caterpillar Stock Pops Despite Plunging Profit

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You read that right: Shares of Caterpillar (NYSE: CAT  ) are up 3% in afternoon trading after the company announced that its earnings fell a staggering 45% in the first quarter compared with the same time period of last year. Caterpillar's stock is doing so well, in fact, that it's the second-best-performing component on the Dow Jones Industrial Average (DJINDICES: ^DJI  ) , which itself is fighting to stay in the black, up by 22 points an hour before the market closes.

For the three months ended March 31, the heavy-equipment maker earned $880 million on $13.2 billion in revenue compared to last year's $1.6 billion in net income on almost $16 billion in sales. On a per-share basis, Caterpillar earned $1.31, missing the consensus estimate by $0.09 per share, according to The Wall Street Journal.

The impetus for the decline was twofold. First, the continued economic malaise in the United States and disturbing trends out of Asia are putting a damper on demand for the company's high-priced items. Domestic sales were down 20%, while sales in Asia were down 21%. Trying to put it in the best light possible, Caterpillar's CEO said:

As we began 2013, we were concerned about economic growth in the United States and China and are pleased with the relative stability we have seen so far this year. In the United States, we are encouraged by progress so far and are becoming more optimistic on the housing sector in particular. In China, first quarter economic growth was slightly less than many expected, but in our view, remains consistent with slow growth in the world economy.

And the second impetus has been a dramatic fall in commodity prices, which further affected demand for Caterpillar's mining equipment. With this in mind, the company's 2011 acquisition of Bucyrus International, a company that specializes in mining machinery, appears bittersweet. On one hand, Caterpillar predicts that sales of Bucyrus products will fall by as much as 15% this year. But on the other hand, Caterpillar predicts that its own eponymous brand of mining equipment will see its sales figure cut in half.

With this in mind, the company cut its guidance going forward. It now expects to earn $7 per share this year, down from a range of $7 to $9 per share predicted earlier.

Nevertheless, Caterpillar is the market share leader in an industry in which size matters, and its quality products, extensive service network, and unparalleled brand strength combine to give it solid competitive advantages. Read all about Caterpillar's strengths and weaknesses in The Motley Fool's brand-new report. Just click here to access it now.

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9/30/2016 5:01 PM
^DJI $18308.15 Up +164.70 +0.91%
CAT $88.77 Up +1.30 +1.49%
Caterpillar CAPS Rating: ***