Caterpillar gave investors the first reason to be happy, with the release of its second quarter results at 6:00 am in the East. The stock jumped 6.0% in the pre-market after earnings, in which both earnings and revenue fell from a year ago as the COVID-19 pandemic weighed in, but exceeded expectations of Wall Street.
So just like the CAT stock,
was near its pre-market highs, Caterpillar released its 3-month retail sales statistics and the early gains began to evaporate. Global retail sales, reported in constant dollars over unit dealer sales, fell 23% year-over-year for the three-month rolling period ending in June, after falling 23% in May and by 22% in April. Sales in North America fell 40% in June after falling 36% in May and 27% in April. In the resource industries, retail sales fell 21% in June after falling 21% in May, with North America declining 46% in June after falling 39% in May.
This comes though Caterpillar said it saw activity in the resource industries start to improve in May and June.
Then the stock turned significantly lower after Caterpillar participated in its post-earnings analyst conference call, which began at 8:30 a.m.
The stock fell 2.8% to close at $ 132.88 on Friday, and has lost 5.4% since closing at a 5-month high of $ 140.53 on Wednesday. Since the start of the year, it has fallen by 10.0%, while the exchange-traded fund SPDR Industrial Select Sector XLI,
slipped 12.0% and the Dow Jones Industrial Average DJIA,
decreased by 7.4%.
During the analyst call, managing director James Umpleby noted that the change in dealer inventories from a year ago resulted in nearly half of the sales decline for the quarter.
“The decrease in dealer inventories over the last quarter has been larger than expected,” Umpleby said, according to a FactSet transcript of the call. “We now expect our dealers to reduce their inventories by more than $ 2 billion by the end of the year.”
This prospect actually looks more like a reduction of $ 2.2 billion. CFO Andrew Bonfield said inventories were reduced by $ 1.2 billion for the first half of the year. For the second half of the year, he said based on the latest reading of end-user demand, he expects dealers to reduce inventory by another billion dollars.
During that post-first quarter earnings conference call on April 28, Bonfield said he expected year-end dealer inventory reductions to be in the “high end” of the year. previously provided guidance range of $ 1.1 billion to $ 1.5 billion. He said he would give an update on the 2021 outlook in January. Learn more about the first quarter results.
And when it comes to the outlook for retail sales, Umpleby said he expects a third quarter drop of around 20%, which is consistent with the second quarter decline.
Overall, the company said in the earnings release that it was not providing a financial outlook for 2020 at this time, given lingering uncertainties about the effect of the COVID-19 pandemic on the global economy. Read the latest Coronavirus update from MarketWatch.
“We will adjust production according to conditions and are ready to respond quickly to any positive or negative changes in customer demand,” Umpleby said.
And during the analyst call, Bonfield said succinctly, “In 2021, we plan to produce on demand.”