Shares of Caterpillar jump 5% on second-quarter earnings beat

Key Points
  • Caterpillar's stock is up on its second-quarter earnings report.
  • The construction machinery maker beat estimates on both EPS and revenue.
  • The company is still under investigation by the IRS.
Caterpillar on display at the CONEXPO in Las Vegas.
Michael Newberg | CNBC

Caterpillar reported better-than-expected second-quarter earnings before the bell on Tuesday, driving its shares up 5 percent in premarket trading.

The company is raising its full-year guidance to $5.00 per share, from its previous outlook of $3.75 per share, as "disciplined" costs in the first half of the year allow new room for investment, according to the earnings report.

"We anticipate making targeted investments in initiatives ... including enhanced digital capabilities and accelerating technology updates to our products," CEO Jim Umpleby said in a statement.

Results vs. expectations:

  • EPS: $1.49 per share vs. $1.26 per share expected, according to Thomson Reuters.
  • Revenue: $11.33 billion vs. $10.93 billion expected, according to Thomson Reuters.

Second-quarter revenues were up nearly $1 billion from a year ago, with earnings per share 40 cents higher as well. While explaining the most recent quarter, Umpleby drew attention to Caterpillar's performance in both the Chinese construction and North American gas markets. Overall, Caterpillar is benefiting from "improving demand for construction" in multiple areas around the world, Umpleby said.

The adjusted EPS does not include $1.2 billion in restructuring costs, which the company announced it expects to incur this year.

Calling it "classic Caterpillar," machinery analyst for J.P. Morgan Ann Duignan warned that the company's recent success may not translate into longer term growth. She believes there is a cyclical nature to Caterpillar which may reveal itself after a few quarters of growth.

"They could probably deliver another couple of quarters like they normally do and then, the key question is if this is a different Caterpillar or is this the same old Caterpillar that eventually delivers lower incrementals and lets expectations get too high," Duignan said on CNBC's "Squawk on the Street."

The construction machinery maker has been fending off a handful of legal matters, including an Internal Revenue Service investigation into profits earned by a Swiss subsidiary.

In March, a law enforcement raid of company facilities in Peoria, Illinois, sent the stock lower. Caterpillar said it was cooperating with the search as authorities exercised a search warrant.

Caterpillar previously said it is "vigorously contesting" a $2 billion package of taxes and penalties proposed by the tax agency. The company asserts that the transactions relevant to the investigation "complied with applicable tax laws and did not violate judicial doctrines."

Based on the information available at the time, Caterpillar said it believes the result will not have a "material adverse effect on [its] consolidated financial position, liquidity or results of operations."

In response to the IRS investigation, on March 16 Caterpillar tapped former U.S. Attorney General William Barr to help the company.

"I have asked Bill ... to take a fresh look at Caterpillar's disputes with the government," Umpleby said in a statement.

Caterpillar is moving its Peoria headquarters to the Chicago area. But most of the 12,000 manufacturing jobs will stay in Peoria, Caterpillar said in April. The company says relocating will improve recruiting, and said it would shift 300 senior executives and staff to Chicago.