Caterpillar Sees Its Stock Fall After Earnings Release

The heavy machinery maker saw its earnings beat analyst expectations. Still, revenue fell short, causing investors to sell off its stock.

Aug. 3, 2022

Caterpillar, Inc. (NYSE: CAT) — the world’s leading construction and mining equipment manufacturer — released its second-quarter earnings yesterday. The company saw its earnings per share beat the analyst consensus by 5.45% while increasing year-over-year (YoY) by 22% to $3.18. Caterpillar reported sales of $14.25 billion, 0.96% lower than the analyst consensus. This was partly why the company’s stock is down by 2.7% since releasing its results.

The key results from Caterpillar’s earnings release

Caterpillar’s revenue increased by 11% YoY to $14.247 billion. The vast majority of this revenue increase came from price realizations — $1.1 billion — while volume sales only grew by $499 million. Currency fluctuations cut revenue growth by $258 million due to the stronger dollar. This is likely to continue for the next few quarters.

The company’s operating profit increased by $100 million YoY to $1.9 billion. However, the operating margin fell by 0.3 points to 13.6% due to higher costs from manufacturing, currency exchanges, research and development, and selling, general, and administrative costs. Together, these increased Caterpillar’s operating costs by $1.122 billion, slightly more than the total price realizations.

The bulk of the company’s sales growth came from North and Latin America. These markets saw consolidated sales increase by 18% and 27% respectively, due to higher sales volume in Latin America and positive price realizations in both segments. Consolidated sales declined by 3% in Europe, Africa, and the Middle East (EAME) due to lower sales volumes and unfavorable currency impacts. Finally, the Asia/Pacific segment saw sales growth slow to 3% YoY due to lower sales volume in China as the country imposed its zero-COVID policy. 

The company’s profitable financial products segment saw sales increase by $24 million, or 3%. However, the segment’s profits fell by $26 million due to a higher provision for credit losses and an unfavorable impact from equity securities. This segment only represented 5.6% of the company’s total revenue, meaning it can afford to take a hit here.

What impact did Caterpillar’s results have on its share price?

Investors were disappointed with the company’s revenue growth, which underperformed the analyst consensus. This led to a sell-off in the stock, especially as the company’s oil and gas segment appeared to perform poorly compared to the great year the oil and gas industry is having in general. CEO Jim Umpleby also said that the headwinds facing the company, such as a strong dollar and supply chain disruptions, are unlikely to go away soon. This indicates that Caterpillar expects to see lower growth over the coming quarters, which disappointed investors and their appetite for the stock.