It’s the guidance that counts.
Before the opening bell, Caterpiller (CAT) reported second quarter earnings of 72 cents a share, a whopping 50 cents a share above the Wall Street conesnsus of 22 cents. Like many other companies this quarter reporting better than expected earnings, Caterpillar disappointed on revenue. Revenue for the quarter came in at just $7.98 billion, well below the $8.86 billion Wall Street was expecting, and a huge 42% drop from revenue in the second quarter of 2008.
But it was the company’s guidance for the full year that sent the stock soaring this morning–up 11% from yesterday’s close as of 10:40 a.m. ET on Tuesday.
Caterpillar told Wall Street that it now expects full year 2009 earnings of $1.15 to $2.25 a share. That’s a very wide spread, reflecting that many uncertainties that still surround the pace of the global economic recovery. But even the low end of that range–at $1.15 a share–is well above the $1.02 that Wall Street analysts had been projecting for the company before this quarter’s earnings report. Revenue, Caterpillar said, would be $32 billion to $36 billion. That’s in-line with current Wall Street projections of $34.86 billion.
A nice little tidbit is that their “redundancy costs” imply they are ALMOST done laying off employees. They recorded $0.58 of redundancy costs in Q109 + $0.12 in Q209 for a year-to-date total of $0.70. They guided at $0.75 in redundancy costs for the full year.
Whatever the earning say, I’m scratching my head at the P/E multiple the market is willing to put on CAT shares. At the midpoint of their extremely wide guidance, and after subtracting all redundancy costs, the P/E is almost 25! A 25 p/e for a cyclical? How far out are we looking at this point?
Ditto for BTU, another company with not so hot guidance today. “U.S. coal supply-demand fundamentals remain out of balance” means more production cuts need to be made.They guided annual earnings at $1.00 – $1.40 per share, and the stock is trading at $33?
Either earnings will catch up to prices or prices will come back to reality. Either way stocks are probably overbought on the GS earnings news.