Caterpillar machinery in Chillicothe, Ill., on March 19, 2017.Carlo Allegri/Reuters
Caterpillar CAT-N beat Wall Street estimates for second-quarter profit on Tuesday, as higher prices and easing manufacturing costs countered moderating demand for the company’s heavy equipment across its major markets.
Shares of the company, known for its ubiquitous yellow excavators, rose 3 per cent in early trading as it projected annual adjusted operating profit to be higher than its previous forecast. Peer Deere, set to report next week, rose 2 per cent.
“Margin exceeded our expectations, primarily due to lower-than-expected manufacturing costs and slightly better-than-expected price,” CEO Jim Umpleby said on an earnings call.
Caterpillar, which makes machinery used in the construction, mining and oil and gas industries, reported a favourable price realization of $578-million in the quarter.
“Caterpillar’s pricing strength will continue to hold a steady base for their profit forecasts, but softening order volume compared to 2023 highlights uncertainty in markets outside of the U.S., particularly in China,” Third Bridge analyst Ryan Keeney said.
Still, the company warned of prices moderating.
“While we anticipate some favorability in manufacturing costs …, we do expect slightly lower volumes and a slight headwind from price in the second half versus a year ago,” CFO Andrew Bonfield said.
Overall sales in North America were up 1 per cent, while sales in its construction equipment business were flat.
Benefits from President Joe Biden’s 2021 infrastructure law, a $1-trillion enactment aimed at upgrading roads, bridges, and other transport infrastructure, are beginning to taper after helping weather weakness in the company’s other regions.
Meanwhile, equipment sales in Asia-Pacific declined 9 per cent, while they fell 16 per cent in Europe, Africa and Middle East (EAME). Latin America was a bright spot with a 5 per cent bump.
“Sales to users declined in EAME, primarily due to weakness in Europe-related new residential construction and economic conditions,” Umpleby said.
Changes in dealer inventories led to the decrease in volume, Caterpillar said. Dealer inventory decreased by about $200-million during the second quarter, compared with an increase of $600-million in the year-ago period.
The years-long crisis in China’s real estate market has pressured Caterpillar’s sales for the past several quarters.
The company also cited a weak Japanese yen for the drop in sales in Asia-Pacific during the quarter.
Caterpillar reported an adjusted profit per-share of $5.99, compared with estimates of $5.54, according to LSEG data.