Home Economics Caterpillar, McDonalds Shares Surge After Smashing Estimates

Caterpillar, McDonalds Shares Surge After Smashing Estimates

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Dow component Caterpillar and McDonalds are both spiking in the premarket after smashing expectations, in both cases reporting numbers above the highest Wall Street estimate.

Confirming the rebound in global sales, its first up month since 2012, Caterpillar reported 1Q adjusted EPS $1.28, more than double the consensus estimate of 62c, on revenue of $9.82b, higher than the estimate of $9.27 billion, and above the highest Wall Street forecast of $9.59BN.  That said, on a GAAP basis, EPS fell to $0.32 from $0.46 a year earlier.

Despite the strong quarterly performance, in the first earnings statement since federal agents raided three of its offices in March, CAT cut its full year EPS forecast, and now it expects earnings per share of $2.10 for 2017, down from a previous full year forecast of $2.30, citing higher restructuring costs. On the other hand, CAT boosted its top line guidance, and now sees full year revenues of $38b-$41b, up from the previous guidance of $36b-$39b, and above Wall Street’s estimate est. $38.2 billion.

“Restructuring costs expected in 2017 are significantly higher than the prior outlook primarily due to ongoing manufacturing facility consolidations,” CAT said in its earnings report, adding that it expects to incur about $1.25bn in restructuring costs this year, up from $750m in its previous outlook, including recently announced plant closures in Illinois and in Belgium.

What the market focused on was CAT’s upbeat statement on rising sales, driven by strength out of China, as reported yesterday:

“There are encouraging signs, with promising quoting activity in many of the markets we serve and retail sales to users turning positive for both machines and Energy and Transportation for the first time in several years,” said outgoing chief executive Jim Umpleby in a statement. “While we are raising the full-year outlook for sales and revenues, there continues to be uncertainty across the globe, potential for volatility in commodity prices, and weakness in key markets.”

As discussed on Monday, Caterpillar announced stronger than expected global machine retail sales for March, up 1%, the first increase in more than four years.

 

CAT shares surged over 6% in early trading on the strong results. The company’s sales have been hit by the prolonged global commodities and mining slumps but President Donald Trump’s promise of an infrastructure spending boom boosted the company’s shares after his election.

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Eslewhere, McDonald’s similarly smashed estimates, reporting 1Q EPS of $1.47, higher than the consensus estimate of $1.34, and above the highest forecast of $1.45.  The company reported 1Q revenue of $5.68b, which beat the consensus of $5.53b and tied the highest forecast of $5.68b, even if it was down from $5.90 billion reported a year prior.

Traffic metrics were impressive, with Q1 US comp. sales of +1.7% rising well above the estimate of -0.8%. Global Q1 comp. sales rose +4.0%, above the est. +1.3%, with 1Q International lead market comp. sales +2.8%, est. +1.7%, driven by momentum in the U.K. and the Canada launch of All-Day Breakfast. MCD also reported 1Q High-growth market comp. sales +3.8%, est. +2.7%, Foundational and Corp. comp. sales +10.7%, est. +4.3%.

The strong sales trends, seemingly taken from other fast-food retailers, led to Q1 operating income of $2.03b, also above the estimate of $1.83bn.

McDonald also reported that total Q1 franchised restaurant margin rose to 81% vs 80.7% y/y. Additionally, total co-owned restaurant margin 17.5% vs 15.4% y/y. U.S. franchsided margin 81.6% vs 82.1%; reflects higher occupancy costs, partly offset by positive comparable sales.

For full-year 2017, costs for total basket of goods are expected to increase about 0.5%-1.5% in U.S., and increase about 2.0% in the International segment.

The company expects full-year 2017 SG&A expenses to decrease about 7%-8% in constant currencies with fluctuations expected between quarters; includes incentive-based compensation costs of <$300m.

McDonalds also said it sees a full year effective income tax rate 31%-33%; sees year capex ~$1.7b, 1/3 of which will be used to open new restaurants.  MCD expects to open ~900 restaurants, including ~500 in affiliated, developmental licensee markets where co. generally does not fund any capital expenditures.

As a result, MCD shares were also up nearly 3% in the premarket, and boosting Dow futures up over 160 points.



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