Woes betide the cyclical company that dares to miss guidance these days. More than a few analysts and traders are looking for blood in cyclical sectors such as energy, mining, and construction, and it looks on this Friday as though Caterpillar's
That's not to say that Cat had a bad quarter. Sales were up 17% to nearly $9 billion. Once again, this proves just how worthless the notion of "record" earnings really is. Yes, this quarter's performance was a record, but the stock is down 10% at the time of writing. I guess nobody wants to celebrate the new record.
Although revenue performance was indeed sharp, beating the mean estimate by more than 6%, margins weren't so great. Bottlenecks in manufacturing and the costs of raw materials took their toll: Even though the company boosted its operating margin by nearly two percentage points, it missed the bottom-line estimate by more than 10%. Making matters worse, Cat trimmed down future guidance as well -- adding a little gasoline to an environment in which investors were already well-prepared to burn the company at the stake.
So, in a nutshell, we have here a true-to-life telling of the joys of investing in cyclical companies. Though the company still expects to grow at a mid-teens or better rate next year, and though the P/E is in the low to mid-teens, investors are willing to call it a day on this stock. And why not? The prices of energy and raw materials aren't really easing off yet, the company is concerned about what higher interest rates may do to demand, and we're still waiting on the pickup in commercial construction.
If you pull up a long-term chart of Cat, you'll see a long upward trend of jagged spikes. That is, for better or worse, the nature of this particular beast, as it is for other large-equipment makers like Deere
For more on the ups and downs of heavy equipment:
The Motley Fool has kicked off its ninth annual Foolanthropy campaign! Nominate your favorite charities on our Foolanthropy discussion board through Nov. 1. For guidelines on what makes a charity Foolish, visit www.foolanthropy.com .
Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).