Irving, Texas-based Caterpillar, a Dow component and gauge for global economic health reported mixed fourth-quarter numbers on Tuesday before the market open. $CAT missed on earnings but beat on revenue. The company saw strong demand for its construction and mining equipment and engines for transportation and energy generation despite higher prices. Sales came to $16.60 billion for the quarter, topping Wall Street expectations. CAT was trading $249.62 -11.88 (p 4.54%) Pre-Market
Foreign-exchange headwinds however weighed on profit and its operating margin fell to 10.1% from 11.7% a year ago.
The industrial equipment manufacturer is right at the front line for global supplies.
Caterpillar Inc. (NYSE: $CAT) Report Earnings Before Open Tuesday
Q4 2022 Earnings
- Profit of $1.45 billion, or $2.79 a share, down from $2.12 billion, or $3.91 a share, in the same period a year earlier.
- Takingout one-time items, adjusted earnings came to $3.86 a share, missing Wall Street estimates of $3.97 a share.
- Adj EPS: $3.86 (exp $3.97)
- Revenue: $16.6B (exp $15.27B)
- Adj Oper Income $2.18B (est $2.54B)
- Operating margin fell to 10.1% from 11.7% a year before as higher manufacturing costs and mostly noncash charges weighed on earnings in the quarter.
- CAT booked a $925 million goodwill impairment charge and $180 million in restructuring costs tied to a lower outlook for the company’s locomotive offerings. Both are primarily noncash items.
- Construction equipment sales, such as bulldozers and excavators, rose by 19% to $6.85 billion for the quarter, with higher sales recorded across all of the company’s geographic markets except Asia.
- Sales in its energy and transportation business rose to $6.82 billion during the quarter. Caterpillar’s engines sales used at drilling sites and pipelines during the quarter.
- Sales of the company’s mining equipment rose by 26%, boosted by gains across every region.
CAT Stock Market Reaction
- $249.62 -11.88 (4.54%) Pre-Market
- $249.62 +10.74 (4.50%) YTD
- $249.62 +48.06 (23.84%) Over year
- $249.62 +87.04 (53.54%) Over 5 years
- 52wk High 266.04
- 52wk Low 158.78
Caterpillar is optimistic about the year ahead, saying it expects sales to increase from last year with the help of favorable prices even as dealer inventories remain little changed. Any concerns about manufacturing costs will be more than offset by price hikes this year, the company said.
Caterpillar Earnings Risks
Caterpillar’s sales were hurt by its exit from Russia as well as supply chain issues, and it also saw elevated costs during the quarter.
- Higher freight costs, rising material costs, and production inefficiencies related to supply chain constraint headwinds caused operating margin to contract
- Higher manufacturing costs were the biggest factor hurting margins, offsetting some of the pricing and volume gains.
- Rising oil and gas prices are buoying CAT’s Energy & Transportation segment as oil and gas production and exploration companies ramped up activity to capitalize on higher commodity prices.
Caterpillar was ravaged by the pandemic and the global economic downturn that ensued Caterpillar emerged from those troubles in a favorable position as construction activities and infrastructure spending rebounded. Light dealer inventories, coupled with strengthening demand for machinery, set the stage for a sharp upswing in equipment sales. However, the supply crisis brings darkening clouds with the risk of nullifying CAT’s vastly improved performance and upside results.
Margins continue to be squeezed by a combination of higher freight costs, rising material costs, and production inefficiencies related to supply chain constraints. China remains a difficult sluggish market with escalating risks and volatility from the property market collapse there. This is a threat to CAT’s construction business. On top of this rising interest rates forewarned by the Fed and tighter monetary policies could slow capital investments into large-scale projects, dampening demand for heavy machinery.
The company contending with higher manufacturing costs and ongoing supply chain disruptions and shipping congestion is applying further pressure on expenses.
The chip shortage that has derailed production at major automakers like General Motors (GM) and Ford (F) may trickle down to CAT. Throwing a wrench in the bullish outlook is the possibility that the disruptive chip shortages will filter through to CAT, preventing it from fully reaping the rewards of a favorable environment.
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