Caterpillar's Q2 results were poor on multiple fronts
- CAT edges higher despite major earnings miss.
- Adjusted EPS arrives 18 cents below an already moribund consensus.
- Resource and Construction segments see dwindling YoY sales in Q2.
- Daily chart shows CAT likely to reverse lower on RSI divergence pattern.
Caterpillar (CAT) stock is straining to hold onto gains Tuesday afternoon after reporting a mixed bag of results for the second quarter. The large construction and mining equipment maker offered up a large miss on the bottom line, but revenue came in ahead of Wall Street expectations.
At the time of writing, CAT stock remains above $434, eking out a 0.2% advance, while the rest of the market ticks moderately lower. The ISM Services Purchasing Manager Index (PMI) figures for July came in below expectations, printing at 50.1 after June's 50.8 and showing a sector near contraction territory.
The Dow Jones Industrial Average (DJIA), which includes Caterpillar, is the best-performing of the major US indices, down 0.15% as its UnitedHealth Group (UNH) holding recovers from recent losses.
US President Donald Trump once again reiterated that he would substantially raise tariffs on India due to its purchases of Russian Oil, while he threatened to raise tariffs on pharmaceuticals up to 250% over time.
Caterpillar earnings news
Caterpillar earned adjusted earnings per share (EPS) of $4.72 in the second quarter, which was 18 cents or 3.7% behind the Street's consensus view. Wall Street was already expecting profit to fall 18% in the quarter, but instead it pulled back by 21%.
Meanwhile, revenue of $16.6 billion was $340 million ahead of estimates while falling 1% from a year ago. Construction Industries and Resource Industries continued to supply the negative results, while the Energy & Transportation segment once again was the bright spot. The former two segments are experiencing softer pricing and less demand as the market is at the low ebb of the commodities cycle, while the latter segment is experiencing heightened demand from the robust buildout of AI data centres.
Construction revenue in Q2 fell 7% YoY to $6.19 billion, while Resource dropped 4% to $3.09 billion. Energy & Transport had revenues of $7.84 billion, up 7% from a year earlier. Europe, Africa and the Middle East (EAME) was the only region to experience annual growth.
What's worse was the margins. Adjusted operating profit fell from 22.4% a year ago to 17.6% in the second quarter. Management said that rising tariffs and weaker pricing were to blame.
Then for the third quarter, guidance was said to be in line with last year's third quarter, excluding tariff costs. With a 50% tariff on steel and aluminum, Trump's ongoing trade war with the rest of the world could bite soon enough.
Caterpillar stock forecast
Caterpillar stock has been trending within oversold levels on the Relative Strength Index (RSI) for more than a month now. This is usually a setup for a bearish reversal already, but the extreme RSI divergence located on the daily chart below makes the odds of this even higher.
Since the end of June, CAT stock has been reaching higher highs fairly steadily, which makes the top trendline veer sharply upward. However, the similar RSI trendline shows the highs sinking slightly lower simultaneously. This RSI divergence typically precedes a major pullback.
Support sits at the former resistance level near $418 and then at the 50-day Exponential Moving Average (EMA) at $394 and the 100-day EMA circa $375.
CAT daily stock chart
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Author
Clay Webster
FXStreet
Clay Webster grew up in the US outside Buffalo, New York and Lancaster, Pennsylvania. He began investing after college following the 2008 financial crisis.
