Caterpillar results likely to shed light on strength of economic recovery

A Caterpillar logo is pictured on the skid-steer loader at the construction site In Warsaw, Poland June 1, 2017. REUTERS/Kacper Pempel

CHICAGO (Reuters) - When Caterpillar Inc CAT.N reports earnings on Friday, investors will look for clues about the strength of economic recovery from the coronavirus pandemic.

Since the heavy equipment maker is considered a bellwether for global economic activity, signals such as an earnings guidance or resumption of share repurchases should reassure Wall Street about underlying business conditions.

Caterpillar’s profit is expected to plunge 77% year-on-year to 64 cents a share, according to IBES data from Refinitiv. Revenue is estimated to decline 35% to $9.38 billion.

The Deerfield, Illinois-based company has not yet provided new earnings guidance after it withdrew the 2020 outlook in late March citing uncertainty about the pandemic. To preserve cash, share repurchases have been suspended.

A recovery in machine retail sales in Asia and slowing sales declines in other regions have raised hopes that the worst is over for the construction and mining equipment maker.

Easing coronavirus restrictions in the United States should also aid the sales recovery. Underscoring the optimism, the company's stock has gained 34% since mid-May, outperforming the broader Dow Jones Industrial Average .DJI..

Elizabeth Vermillion, an analyst at CFRA, recently upgraded Caterpillar’s shares to ‘Buy’ as she expects its revenues to top analysts’ estimates in 2020 and 2021. Vermillion says an earnings guidance will put investors at ease.

However, a resurgence in coronavirus cases in the United States as well as a second wave of infections in Asia and Europe have raised the risk of fresh lockdowns which could derail the nascent recovery in equipment demand.

Separately, renewed tensions between the United States and China could weigh on Caterpillar’s business in the world’s second largest economy where it faces stiff competition from local players. China accounts for up to 10% of the company’s sales.

Reporting by Rajesh Kumar Singh; Editing by David Gregorio