Caterpillar's stock bounces back after another profit beat offset a revenue miss

By Tomi Kilgore

Adjusted EPS rose to a record that beat forecasts for a sixth straight quarter, boosted by strong profit-margin performance

Shares of Caterpillar Inc. bounced off a six-month low Tuesday, after the construction- and mining-equipment company reported another quarterly adjusted profit that rose above expectations, amid strength in its energy and transportation business and as profit margins improved.

Meanwhile, revenue slipped below forecasts as changes in dealer inventories led to lower sales volumes. The company also lowered its full-year outlook, saying it now expects revenue to be "slightly lower" than 2023, compared with previous guidance that revenue would be "broadly similar."

"Although sales and revenues have been marginally below our expectations, adjusted operating profit margins have been stronger than we anticipated," said Chief Executive Jim Umpleby, according to an AlphaSense transcript of the post-earnings call with analysts.

And because of that strength, Umpleby said full-year adjusted operating profit margins, or the ratio of operating profit to sales, are now expected to be above previous target ranges.

The stock (CAT) jumped 3.1% in morning trading. The rally comes after the stock had dropped 8.5% over the past three sessions to close Monday at the lowest price since Feb. 20.

Net income fell to $2.68 billion, or $5.48 a share, from $2.92 billion, or $5.67 a share, in the same period a year ago.

Excluding nonrecurring items, such as restructuring costs, adjusted earnings per share increased to a record $5.99 from $5.55, beating the FactSet consensus of $5.56.

That marked the sixth straight quarter that adjusted EPS rose above expectations, although the margin of the latest beat (7.9%) was the lowest within that streak.

Adjusted operating profit margin improved to 22.4% from 21.3% a year ago, primarily because of lower-than-expected manufacturing costs and slightly better-than-expected pricing.

Revenue fell 3.6% to $16.69 billion. That was below the FactSet consensus of $16.91 billion and was the third-straight quarterly miss.

The revenue decline was driven by a lower sales volume of $1.21 billion, which was partially offset by increased pricing of $578 million. "The decrease in sales volume was mainly driven by the impact from changes in dealer inventories," the company said, as dealer inventory decreased during the quarter after rising last year.

For 2024, the company expects a "slight reduction" in machine dealer inventory after seeing an increase in 2023.

Among Caterpillar's business segments, energy and transportation sales increased 1.6% to $7.34 billion, well above the FactSet consensus of $6.66 billion, as segment profit jumped 20.2% to $1.53 billion.

Construction-industries sales declined 6.6% to $6.68 billion, below expectations of $6.87 billion, as segment profit fell 3.4% to $1.74 billion.

For resource industries, sales dropped 10% to $3.21 billion, below expectations of $3.30 billion, as segment profit was down 3% to $718 million.

The company kept its 2024 outlook for capital expenditures at $2 billion to $2.5 billion, but said it now expects restructuring costs of around $450 million compared with previous guidance of between $300 million to $450 million.

The stock has rallied 10.5% year to date while the Dow Jones Industrial Average DJIA has tacked on 3.7%.

-Tomi Kilgore

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08-06-24 1127ET

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