Has Caterpillar Peaked?

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President Donald Trump and Vice President Mike Pence visit Caterpillar

The U.S. economy has been white hot for over a decade. What goes up must come down. However, President Trump believes the economy is strong and has more room to run. Sans more government stimulus, I believe the economy will begin to show cracks. That’s why the earnings of cyclical names like Caterpillar (CAT) are so important. They arguably could give an indication on just how strong (or weak) the economy truly is.

Caterpillar manufactures everything from earth-moving equipment to equipment to oil and gas equipment. At some point its revenue and income streams could be impacted by the vagaries of the global economy.

Caterpillar’s Top Line Growth Remains Impressive

Despite my prognostications about the global economy, Caterpillar’s revenue growth has been impressive. Q4 2018 revenue of $14.3 billion was up 11% Y/Y. This was less than the 18% growth reported in Q3 2018. With Caterpillar’s sizable revenue base, one would expect its revenue growth to slow. On a sequential basis, revenue growth was only 6%. I expect Caterpillar’s revenue growth to slow into the single digits over the next few quarters.

Construction is Caterpillar’s largest segment at about 39% of total revenue. Its revenue grew in the high single-digit range while the other two operating segments both grew by double-digits. The lion’s share of Construction’s revenue growth was derived from North America, which was up 17% Y/Y. North America was driven by higher demand for new equipment, of which about half was due to an increase in dealer inventories. Read more:

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