ii view: economic bellwether Caterpillar reports record profit

Second-quarter results to 30 June  

• Revenue down 4% to $16.7 billion
• Adjusted earnings per share up 8% to $5.99
• Quarterly dividend of $1.41 per share, up from $1.30 per share in Q1

Chief executive Jim Umpleby said:

“Our results continue to reflect the benefit of the diversity of our end markets as well as the disciplined execution of our strategy for long-term profitable growth.” 

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ii round-up:

Considered an economic bellwether, Caterpillar Inc (NYSE:CAT) today reported record adjusted profit per share with earnings-beating Wall Street forecasts. 

Raised product prices, reduced manufacturing and freight costs, as well as heightened demand for energy and transportation items including data centre power generation equipment, helped adjusted earnings climb 8% year-over-year to $5.99 per share – exceeding analyst estimates of $5.56 per share. 

Shares in the Dow Jones company rose 3% in post results US trading having come into these latest numbers up 7% year to date. That’s ahead of a 14% decline at fellow large equipment maker Deere & Co (NYSE:DE) and ahead of a near 3% gain for the Dow itself in 2024. 

Caterpillar helps customers globally to pave roads, mine essential commodities or extract fuels to satisfy global energy demand. Overall quarterly sales fell 4% from a year-ago to $16.7 billion, hindered by dealership inventory levels. 

A 2% gain in Energy and Transportation-related sales to $7.2 billion was more than countered by 7% and 10% declines in Construction and Resource industry-related sales to $6.7 billion and $3.2 billion respectively.

Geographically, 1% and 5% gains in North and Latin America offset 16% and 9% retreats across its combined Europe and Africa and Asia Pacific regions.

A second-quarter dividend of $1.41 per share is up from $1.30 in the prior first quarter and accompanies a $1.2 billion share buyback made during the period. 

Third-quarter results are likely early November.    

ii view:

Founded in 1925, Caterpillar today makes construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. Employing over 100,000 people and headquartered in Irving, Texas, North America generates its biggest slug of sales at around two-fifths, followed by Europe and Africa and Asia Pacific both at around a fifth each and Latin America at just over a tenth. 

For investors, a fall in revenue generates caution, with elevated interest rates and an uncertain outlook for China a tough backdrop for both Construction and Resource industry equipment demand. Costs generally for businesses are elevated. Environmental concerns overshadowing energy generation warrant consideration, while a current net asset value-to-share price ratio above the three-year average may suggest the shares are not cheap. 

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To the upside, product price rises have helped offset reduced product volumes. Diversity of both product and geographical region often leave challenges for one arena countered by positives at another. Cash of $4.3 billion is held, while a record of increasing the annual total dividend for 30 years is enviable and leaves the shares on a forecast dividend yield of around 1.7%. 

On balance, and despite continued risks, this mammoth of the industrial machinery world appears to justify its place in many diversified investor portfolios.    

Positives: 

• Product and geographical diversity
• Enviable dividend track record

Negatives:

• Subject to currency moves
• Uncertain economic outlook

The average rating of stock market analysts:

Strong hold