Caterpillar Soars to Record as Profit Beat Allays Slowdown Fears

Joe DeauxTue, August 1, 2023, 11:28 AM EDTIn this article: 

(Bloomberg) — Caterpillar Inc. shares soared to a record after the company defied concerns of a global economic slowdown by reporting a bigger-than-expected profit and resilient demand for its iconic yellow machinery.

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Its stock rose as much as 8% Tuesday after the heavy-machinery maker posted earnings and revenue that both exceeded the highest analyst estimates in a Bloomberg survey. Caterpillar forecast a dip in profit in the current quarter compared with the preceding period, but it also projected second half revenue will rise from a year earlier.

Caterpillar is viewed as a bellwether for the global economy, and its earnings report comes as economists worry about slowing growth from the Americas to Europe and Asia. The company reported stronger sales from construction to mining and energy. Sales rose across most regions, and while it cautioned on weakening conditions in China, the country normally only accounts for about 5% to 10% of overall revenue.

“Our results continue to reflect healthy demand across most end markets for our products and services,” Chief Executive Officer Jim Umpleby said during Tuesday’s earnings call. “It was another strong quarter.”

Caterpillar is one of the world’s biggest producers of heavy machinery, with its yellow bulldozers, excavators and trucks dotting construction sites, mines and oil fields across the globe. Caterpillar’s adjusted profit of $5.55 a share topped the $4.54 average estimate of analysts polled by Bloomberg, helped by successful price hikes to customers of its machinery, along with surging sales.

The order backlog, a sign of future demand health for the company, increased last quarter after being little changed at the beginning of the year.

Shares traded 7.1% higher at $284.08 as of 11:25 a.m. in New York after its biggest intraday increase since early June.

“Investors are looking for cracks and there were no cracks revealed,” Matt Arnold, an analyst at Edward Jones & Co., said in a phone interview. “Going into the quarter I think most investors across the machinery space were worried perhaps demand could show signs of cooling.”

China Sales

Umpleby also warned of softer sales in China than previously anticipated, citing further weakness in excavators most used for Chinese construction projects in his comments to analysts. Still, the CEO said Caterpillar’s full-year results will be better than expected.

“We continue to see improvement in the supply chain, which allowed us to increase production in the quarter,” Umpleby said. “However, areas of challenge remain, particularly for large engines, which impacts energy and transportation, and some of our larger machines.”

Caterpillar anticipates restructuring costs of about $700 million for the year, according to its earnings statement.

Rising freight and material costs, coupled with global supply chain troubles, have been large hurdles for the producer since the beginning of the pandemic in 2020, eating into profit margins. The company has repeatedly raised prices of its equipment to offset such pressures, with success.

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