Earnings have beat expectations in 11 of the past 12 quarterly reports, but the stock has dropped after 10 of those reports
Shares of Caterpillar Inc. sank toward a six-month low Thursday, reversing an initial rally, after the construction- and mining-equipment maker reported big first-quarter profit and revenue beats, amid strong margin improvement, but continued to not provide formal earnings guidance.
On the post-earnings conference call with analysts, Chief Executive Officer Jim Umpleby said he didn’t expect the trend of dealer inventory rebuilds seen in the second half of 2022 to repeat this year.
“Instead, we expect to see dealers decrease inventories compared to first quarter levels and end 2023 about flat relative to the end of 2022,” Umpleby said, according to a FactSet transcript.
The stock (CAT) slumped 2.8% in midday trading, but pared an earlier loss of as much as 5.6% to a six-month, intraday low of $204.04. It had initially jumped up as much as 3.7% in premarket trading within minutes after the earnings were released, but has trended lower since then.
The stock was the Dow Jones Industrial Average’s biggest decliner Thursday, with the $5.94 price decline shaving about 39 points off the Dow’s price, while the Dow rose 308 points, or 0.9%.
Caterpillar reported net income for the quarter to March 31 that rose to $1.94 billion, or $3.74 a share, from $1.54 billion, or $2.86 a share, in the same period a year ago.
Excluding nonrecurring items, adjusted earnings per share reached a record $4.91, well above the average analyst estimate as compiled by FactSet of $3.80. The result beat expectations by the widest margin in two years, according to FactSet data.
Revenue grew 16.7% to $15.86 billion, beating the FactSet consensus of $15.10 billion, also the biggest beat in two years, as energy and transportation sales jumped 24%, resource industries sales increased 21% and construction industries revenue rose 10%.
Operating profit margins improved to 17.2% from 13.7%, as operating costs increased by 11.9%, or by much less than sales.
Excluding restructuring costs, adjusted operating profit margins increased to 21.1% and were “significantly better than we anticipated,” CEO Umpleby said, “due to better than expected manufacturing costs, including efficiencies and absorption, stronger price realization and volume growth.”
Price realization represented 13.9% of the revenue growth, compared with 6.3% a year ago. Sales volume contributed 4.2% of the growth, but that was down from 10.1% last year.
The company didn’t provide formal earnings or revenue guidance, a practice it started in 2020 due to uncertainties resulting from the COVID-19 pandemic. The company said, however, that it expects full-year 2023 adjusted operating margins to be at the top half of the targeted range of 18% to 21%, second-quarter sales to increase versus the first quarter in line with normal seasonality and second-quarter adjusted operating profit margin to be lower than the first quarter but in line with normal seasonality.
Meanwhile, it’s not unusual for Caterpillar to beat earnings expectations and still have its stock fall the day of the report. Over the past 12 quarters, Caterpillar has beaten profit expectations 11 times and revenue forecasts 10 times, but the stock has fallen after 10 of the past 12 reports, according to FactSet data. The average decline, including Thursday’s drop, was 3%, while the average gain on the up days was 5.9%.
The stock has lost 12.2% year to date, while the Dow has tacked on 1.4%.