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Don't Expect Earth-Shattering Results From Caterpillar

To that end, although a slight year-over-year or sequential uptick in revenue would be encouraging, I'm not holding my breath. By now it should be known that consolidated revenue results are expected to underperform for the foreseeable future. In fact, following the 18% revenue plummet in the October quarter, management projected flat revenue for all of 2014 while issuing the caveat "give or take 5%." So there you have it.

Placing a bet here on Caterpillar requires faith that management is able to make the necessary operational adjustments to combat, for instance, the slumping mining market. One of the ways this could be achieved would be cutting costs to improve margins. Because when compared to rivals Deere (DE) and Komatsu (KMTUY), Caterpillar's profitability has grossly underperformed. Yet Caterpillar's stock still carries a premium to both Deere and Komatsu.

This tells me that the Street still wants to love Caterpillar and is hoping that on Monday the company will produce "less bad" results. Even so, there isn't anything the company can do to change the fact that this industry may not return to earth-shattering results for a while. That said, if management can successfully align its costs with the industry's woes, Caterpillar should be able to stabilize its profits and balance sheet. That's a big "if," though.

Warren Buffett once said, "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." In other words, no matter how great a management team Caterpillar may have, the odds are not in the company's favor until the industry recovers. Accordingly, I would stay away from this stock until Caterpillar's revenue and profits are no longer crawling.

At the time of publication, the author held no position in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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