Caterpillar Earnings Crush, But CAT Stock Falls Below Key Level

Caterpillar beat earnings estimates but their stock still fell due to worries about inventories and margins.

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Jun 8, 2023 • 2 min read

Caterpillar's earnings surprised investors with a positive result on Thursday morning, indicating that the global economy remains stable despite growing recession fears. The S&P 500 indicator, CAT stock fell intraday. However, it pared its losses as the market rallied.

The Dow Jones heavy equipment giant did not give any specific guidance but stated that Q2 sales would be higher than Q1 in line with seasonality. Caterpillar also stated in its earnings release that it expects to see "strong sales of heavy equipment and equipment parts" for the second quarter compared with year-end 2020.

Caterpillar's management revealed more details on the conference calls, saying that dealer inventories increased in the first quarter and will finish the year at a lower level than the Q1 levels. This means that equipment dealers will reduce their inventory to fill some of the sales orders, and therefore they won't buy as much Caterpillar equipment.

In the coming years, federal infrastructure spending and the Inflation Reduction Act will likely be the major drivers of non-residential construction. The question is whether this support will be enough to offset the soft housing market and nonresidential construction in 2024 and beyond. Commercial construction loans are a major part of the lending by regional banks.

Umpleby expressed concern over a slowdown in the commercial real estate market. He did, however, highlight Caterpillar’s modest exposure to North American Commercial Real Estate which only accounts for 1% in its construction industry sales.

Analysts expect Caterpillar to earn $3.80 per share, a 32% increase from the previous year, with sales up 12% at $15.25 billion.

Results: Caterpillar reported adjusted EPS of $2.88, which is up 70.5% over the previous year. Revenue increased 17%, to $15.86 Billion. This is a slight slowdown from the 20% growth of Q4.

Andrew Bonfield, CFO of the company, noted in the earnings call that recent trends of manufacturing companies increasing their prices faster than the price increase is diminishing. The adjusted operating profit margin will be lower than the Q1 level, in line with seasonality.

The recent trend in CAT's earnings predictions has been upward, not downward. Analysts now expect EPS to be $15.95 in 2019, up from $15.41 estimated three months earlier.

In the stock market on Thursday, CAT shares fell 0.9% to 214.33 after falling to a six month low of 204.04 during morning trading. Shares closed below the 200 day moving average.

The S&P 500 rose 2% Thursday.

The move below the key support level for CAT could still be a signal of concern for the S&P 500 as a whole, due to its role as a bellwether.

The S&P 500 rallied off its bear market low as the industrial, energy and materials sectors led. The CAT stock rose more than 60% during that time. The S&P 500 climbed 17 percent from its October 12 low to its February 2 rally peak.

The fall of CAT's stock, which began after its earnings report on Jan. 31, preceded the rally peak for S&P 500 only by two days.

United Rentals (URI), a heavy-equipment rentals firm, slightly missed its earnings forecasts late on Wednesday. Despite United Rentals exceeding sales expectations, URI's stock dropped 4.7% on Friday.

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