Caterpillar (CAT) Q1 Earnings Beat Estimates on Strong Demand

Caterpillar Inc. CAT reported first-quarter 2022 adjusted earnings per share of $2.88, which surpassed the Zacks Consensus Estimate of $2.66 by a margin of 8%. The company had reported earnings per share of $2.87 in the year-ago quarter. All of its segments witnessed strong end-market demand that drove its top-line performance. Higher pricing helped offset the impact of unfavorable manufacturing costs (mainly higher material and freight costs) on its earnings in the quarter.

Including one-time items, Caterpillar’s earnings per share was $2.86, a 3% improvement from the prior-year quarter figure of $2.77.

Revenues Up on Strong Demand Across All Segments

The company’s first-quarter revenues of $13.6 billion beat the Zacks Consensus Estimate of $13.5 billion. The top line improved 14% from the year-ago quarter. This upbeat performance was driven by increasing sales volume, courtesy of higher end-user demand for equipment and services, favorable price realization, and the impact of change in dealer inventories. Sales increased across all of its three segments.

Caterpillar Inc. Price, Consensus and EPS Surprise

Caterpillar Inc. Price, Consensus and EPS Surprise

Caterpillar Inc. Price, Consensus and EPS Surprise

Caterpillar Inc. price-consensus-eps-surprise-chart | Caterpillar Inc. Quote

Inflated Costs Hurt Margins

In the quarter under review, cost of sales increased 19.5% year over year to $9.5 billion. Manufacturing costs were higher in the quarter due to inflated material costs and freight costs. Gross profit improved 4% year over year to $4 billion. Gross margin was 29.7% in the quarter under review compared with 32.6% in the prior-year quarter.

Selling, general and administrative (SG&A) expenses increased 9% year over year to around $1,346 million. Research and development (R&D) expenses climbed 22% to $457 million. Both SG&A and R&D expenses in the quarter were up year over year due to investments associated with the company’s strategy for profitable growth.

Adjusted operating profit in the quarter declined 0.5% year over year to $1,868 million. Gains from increased volumes and favorable price realization were negated by inflated manufacturing costs as well as higher SG&A and R&D expenses. Adjusted operating margin was 13.7% in the reported quarter, down from 15.8% in the prior-year quarter.

Segment Performances Backed by High Demand

Machinery and Energy & Transportation (ME&T) sales rose 15% year over year to $12.9 billion in the quarter under review. Construction Industries sales were up 12% year over year to $6.1 billion owing to increased sales volumes reflecting improving end-user demand, the impact from changes in dealer inventories and favorable price realization, somewhat offset by unfavorable currency impacts. Sales growth in other regions helped offset 21% lower sales in the Asia Pacific, which was primarily dragged down by China.

Sales at Resource Industries surged 30% year over year to around $2.8 billion on higher sales volume backed by higher end-user demand for equipment and aftermarket parts, and favorable price realization. The segment witnessed increased demand in mining, heavy construction and quarry and aggregates.

Sales of the Energy & Transportation segment in the quarter were around $5 billion, reflecting growth of 12% from the prior-year quarter as sales were up in all applications.

The ME&T segment reported an operating profit of $1,715 million, which reflected an improvement of 3% year over year. The Construction Industries segment witnessed a 1% growth in operating profit to $1,057 million. Higher volume and favorable price realization were offset by higher manufacturing costs.

The Resource Industries segment’s operating profit improved 16% year over year to $361 million in the quarter under review as higher sales volume and favorable price realization. However, inflated manufacturing costs and SG&A/R&D expenses had a dampening impact. The Energy & Transportation segment’s operating profit slumped 20% year over year to $538 million as increasing manufacturing and SG&A/R&D expenses negated the gains from higher sales volumes.

Financial Products’ revenues climbed 3% to $783 million from the prior-year quarter. Financial Products’ profits were $238 million in the reported quarter — a 2% decline year over year.

Cash Position

In the first quarter of 2022, Caterpillar’s operating cash flow was $0.3 billion compared with $1.9 billion in the prior-year quarter. The company returned $1.4 billion to shareholders through dividends and share repurchases through the quarter and ended the quarter with cash and equivalents of $6.5 billion.

Price Performance

Zacks Investment Research

Zacks Investment Research

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Over the past year, Caterpillar stock has fallen 7.9%, compared with the industry’s decline of 11.3%.

Zacks Rank & Stocks to Consider

Caterpillar currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector are Alcoa AA, Titan International TWI and Packaging Corporation of America PKG. All of these stocks flaunt a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Alcoa has a projected earnings growth rate of 107% for the current year. The Zacks Consensus Estimate for 2022 earnings has moved north by 76% in the past 60 days.

Alcoa delivered a trailing four-quarter earnings surprise of 17.4%, on average. Alcoa’s shares have soared 92% in the past year.

Titan International has an estimated earnings growth rate of 36.5% for fiscal 2022. In the past 60 days, the Zacks Consensus Estimate for current-year earnings has been revised upward by 20%.

Titan International pulled off a trailing four-quarter earnings surprise of 47.6%, on average. The company’s shares have appreciated 27% in a year’s time.

Packaging Corporation has an expected earnings growth rate of 16% for 2022. The Zacks Consensus Estimate for the current year’s earnings has moved up 4% in the past 60 days.

Packaging Corporation has a trailing four-quarter earnings surprise of 19.6%, on average. PKG’s shares have appreciated 11% in a year’s time.

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