“Expectations were getting to high”, according to Longbow Research.
How high is too high? When a 44% surge in earnings proves to be a disappointment for the market.
Beyond Caterpillar’s profits jumping 44%, revenue increased 37%. Sales in North America rose 30%. And the company increased its full-time workforce by 11%.
But that didn’t stop shares from falling on the news. Shares slid 6%…the biggest decline since April 7, 2009, according to Bloomberg.
And the reason for the sell-off: “The first quarter was just incredibly strong. Caterpillar executed very, very well. The second quarter was a bit more normalized”, according to Morningstar.
Obviously, the market wasn’t looking for normalized… but it looks like last week’s sell-off was a little overdone.
The bottom line: last week’s earnings report marks the first time in ten quarters that the company’s profit was lower than expectations. The stock was a little too beaten up on the news (and even after that beating it is still the largest gainer in the Dow…up almost 52% over the past year). And while the company saw “some softening of growth” in China, that not necessarily that bad… “a slowdown lets us in the industry all take a breath and make sure we don’t over-capacitize there”, according to CEO Doug Oberhelman. And granted, looking at valuations, shares are not cheap, but the stock is in a positive trend, and has technically been a long-term buy for the past two years.