Machinery company
Caterpillar
smashed earnings expectations again. But orders backlog fell. Investors will have to decide whether strong performance now is enough to overcome their fears about the global economy down the road.
Management will speak later Tuesday. Investors will be looking for additional order backlog details and clues about how the economy is looking headed into 2024.
Caterpillar (ticker CAT) announced Tuesday earnings per share of $5.52 from sales of $16.8 billion. Wall Street was looking for EPS of $4.80 a share from sales of $16.6 billion, according to FactSet. A year ago, Caterpillar reported EPS of $3.95 from sales of $15 billion.
Sales rose because prices were higher and Caterpillar has been shipping more equipment to customers. End markets have been recovering from Covid-related lows and supply-chain issues that constrained production and led to lower dealer inventories.
Pricing added about $1.3 billion to third-quarter sales. Volumes added about $350 million. Pricing was higher in all segments. Volumes were higher in the construction and energy business segments. Volumes were down to mining customers.
Shares initially jumped after the results were released. The stock gave back gains, however, and was down 3.2% in premarket trading.
S&P 500
futures were up 0.2% and
Dow Jones Industrial Average
futures rose 0.3%.
Investors don’t seem ready to declare victory after a strong earnings report.
“In a nutshell, during first quarter 2023 and second quarter 2023 [earnings reports], investor focus rested on potential margin upside from normalizing supply chains and price/cost tailwinds,” wrote Baird analyst Mig Dobre in an earnings preview report. “Attention will now shift to backlog/order progression.”
Caterpillar ended the third quarter with a backlog of about $28.1 billion, down from a second-quarter backlog of $30.7 billion. Backlog ended the first quarter at $30.4 billion, and ended the third quarter of 2022 at $30 billion.
Dealer inventories increased $600 million in the third quarter after increasing by about $600 million in the second quarter.
Economic weakness can lead dealers to stop ordering, pressuring backlog. Backlog and inventories will be scrutinized when Caterpillar management speaks. Management hosts a conference call at 8:30 a.m. Eastern time.
Dobre isn’t optimistic about the coming call. He rates shares Sell and has a $232 price target on the stock. Overall, 42% of the analysts covering Caterpillar stock rate shares Buy, according to FactSet. The average Buy-rating ratio for stocks in the
S&P 500
is about 55%. The average analyst price target for Caterpillar is about $288 a share.
Coming into Tuesday trading, Caterpillar stock has risen about 12% over the past 12 months. The S&P 500 and Dow Jones Industrial Average have gained about 8% and 1%, respectively.
Write to Al Root at [email protected]
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