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Caterpillar (CAT) Q2 Earnings Top Estimates on Favorable Pricing
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Caterpillar Inc. (CAT - Free Report) reported second-quarter 2024 adjusted earnings per share of a record $5.99, which beat the Zacks Consensus Estimate of $5.53 by a margin of 8.3%. The bottom-line figure marked an 8% year-over-year improvement.
Favorable price realization and manufacturing costs and improved profit in the Energy & Transportation segment, mainly led to the improvement in CAT’s earnings. The company witnessed volume declines in its segments mainly attributed to changes in dealer inventories.
Including one-time items, Caterpillar’s earnings per share were $5.48, down 3% from $5.67 in the year-ago quarter.
Caterpillar Inc. Price, Consensus and EPS Surprise
The company reported second-quarter revenues of around $16.69 billion, which missed the Zacks Consensus Estimate of $16.76 billion by a slight margin of 0.4%. The top line was 3.6% lower than the year-ago quarter as favorable price realization was offset by lower volumes reflecting changes in dealer inventories.
Improved results in the Energy & Transportation segment were offset by weaker performances in the Construction Industries and Resource Industries segments. Latin America and North America witnessed 5% and 1% year-over-year improvement, respectively, in sales. This was offset by a 16% sales decline in EAME and a 9% drop in sales in Asia Pacific.
Favorable Manufacturing Costs, Prices Aid Adjusted Margin Expansion
In the quarter under review, the cost of sales decreased 8% year over year to $10.2 billion. Gross profit improved 4.6% year over year to $6.5 billion on favorable manufacturing costs mainly due to lower freight costs. The gross margin was 39.2%, a 310 basis point expansion from 36.1% in the year-ago quarter.
Selling, general and administrative (SG&A) expenses increased 8% year over year to around $1.65 billion. Research and development (R&D) expenses were up 1.3% to $535 million. This was mainly due to CAT’s ongoing investments aligned with strategic initiatives.
CAT reported an operating profit of around $3.5 billion in the second quarter, a 4.7% decline from the year-ago quarter. Favorable price realization offset by lower volumes, in addition to higher restructuring costs and increased SG&A and R&D expenses, led to lower profits. The operating margin was 20.9%, down from 21.1% in the year-ago quarter.
Restructuring costs increased due to the divestiture of two non-U.S. entities. Excluding this, adjusted operating profit was $3.74 billion in the quarter, up 1.5% from $3.68 billion in the year-ago quarter as favorable price realization and manufacturing costs offset elevated SG&A and R&D expenses and lower volumes. The second-quarter adjusted operating margin was 22.4% compared with 21.3% in the year-ago quarter.
Segment Performances
Machinery and Energy & Transportation (ME&T) sales dipped 4.3% year over year to around $15.8 billion in the second quarter.
Construction Industries' sales were down 7% year over year to $6.68 billion on lower sales volume (due to changes in dealer inventories), somewhat offset by favorable price realization. Sales were up 20% in Latin America, remained flat in North America, plunged 27% in EAME and declined 15% in Asia Pacific.
The segment’s total sales were lower than our estimate of $6.8 billion, which had factored in a volume decline of 5.9% and pricing growth of 1.5%. The segment reported a volume decline of 8.3% and a favorable price impact of 2.5%, which led to the variance.
Sales in the Resource Industries segment were down 10% year over year to around $3.2 billion. Lower volumes, mainly due to changes in dealer inventories, offset favorable price realization. Sales were down 15% in EAME and 12% in Asia/Pacific. Sales were down 10% in North America and 3% in Latin America compared with the year-ago quarter.
The segment’s second-quarter sales were lower than our projection of $3.4 billion. We had expected the segment’s volume to decline 2.4% and pricing growth of 4%. The segment reported a 13.7% decline in volume, which was somewhat offset by a 3.8% favorable impact from pricing.
Sales of the Energy & Transportation segment were around $7.3 billion, reflecting growth of 2%, driven by favorable price realization, while volume dipped. The segment reported sales growth in Power Generation (15%), Oil and Gas (4%) and Transportation (7%), which was offset by a 21% decline in sales to the Industrial sector.
For the Energy & Transportation segment, our sales estimate was $5.96 billion, with volume growth of 0.7% and pricing of 0.6%. The segment, however, reported a 2.2% decline in volumes while pricing improved 4.4%.
The ME&T segment reported an operating profit of $3.66 billion, which reflected an increase of 3% year over year. The improvement was mainly led by the Energy & Transportation segment, which reported a 20% year-over-year increase in operating profit to $1.52 billion. The Construction Industries segment’s operating profit dipped 3% year over year to $1.74 billion. The Resource Industries segment’s operating profit was down 3% year over year to $0.7 billion.
Financial Products’ total revenues climbed 9% to $1 billion from the year-ago quarter due to higher average financing rates across all regions and increased average earning assets in North America. The segment reported an operating profit of $227 million compared with $240 million in the second quarter of 2023.
Cash Position
Operating cash flow was $3 billion for the second quarter. This brings Caterpillar’s operating cash flow for the first half of 2024 to around $5.1 billion compared with $4.8 billion in the year-ago comparable period. Through the first half of 2024, the company returned $7.6 billion to shareholders as dividends and share repurchases. CAT ended the quarter with cash and equivalents of around $4.3 billion, lower than the cash holding of around $7 billion at 2023-end.
Expectations for Q3 & 2024
The company anticipates sales in the third quarter to be lower than last year’s quarter. Dealer inventories of machines will be flat or dip slightly. Machine sales to end users will be lower compared with a stronger third quarter of 2023. Adjusted operating margin will be similar to the year-ago quarter. CAT had reported revenues of $16.8 billion and an adjusted operating margin of 20.8% in the third quarter of 2023.
Caterpillar expects revenues in 2024 to be slightly lower than the record 2023 revenues of $67 billion. Adjusted operating profit margin is expected to be above the company’s target range corresponding to the expected level of revenues. At revenues of around $64.5 billion, the projected adjusted operating profit target range is 16-20%.
Both adjusted operating profit and earnings per share are likely to be higher than previous expectations.
Caterpillar expects ME&T free cash flow to be in the top half of its targeted range between $7.5 billion and $10 billion.
Price Performance
Over the past year, the Caterpillar stock has risen 12.3% compared with the industry’s 9.8% growth.
Image Source: Zacks Investment Research
Manufacturing Stocks’ Performance in Q2
Terex Corporation (TEX - Free Report) reported earnings of $2.16 per share, which beat the Zacks Consensus Estimate of $2.03. This was 8% lower than earnings per share of $2.35 in the year-ago quarter. Over the trailing four quarters, the company surpassed consensus estimates for earnings thrice and came in line in one quarter, delivering an average surprise of 16.79%.
Terex’s revenues declined 1.5% year over year to $1.38 billion and missed the Zacks Consensus Estimate of $1.42 billion. Strong demand for Terex’s Genie products in North America was offset by lower demand in Europe, which primarily impacted the materials processing business.
H&E Equipment (HEES - Free Report) reported earnings per share of 91 cents, which missed the Zacks Consensus Estimate of $1.00. The bottom line marked a 20% decline from the year-ago quarter.
Revenues improved 4% year over year to $376.28 million, missing the Zacks Consensus Estimate of $389 million. Rental revenues rose 6.5% from the year-ago quarter, primarily due to the ongoing expansion of HEES’ branch network.
Zacks Rank & a Stock to Consider
Caterpillar currently carries a Zacks Rank #3 (Hold).
Mueller Water has an average trailing four-quarter earnings surprise of 64.1%. The Zacks Consensus Estimate for MWA’s fiscal 2024 earnings is pinned at 86 cents per share, which indicates year-over-year growth of 36.5%. Estimates have moved 1% north in the past 60 days. The company’s shares have risen 42.8% in the past year.
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Caterpillar (CAT) Q2 Earnings Top Estimates on Favorable Pricing
Caterpillar Inc. (CAT - Free Report) reported second-quarter 2024 adjusted earnings per share of a record $5.99, which beat the Zacks Consensus Estimate of $5.53 by a margin of 8.3%. The bottom-line figure marked an 8% year-over-year improvement.
Favorable price realization and manufacturing costs and improved profit in the Energy & Transportation segment, mainly led to the improvement in CAT’s earnings. The company witnessed volume declines in its segments mainly attributed to changes in dealer inventories.
Including one-time items, Caterpillar’s earnings per share were $5.48, down 3% from $5.67 in the year-ago quarter.
Caterpillar Inc. Price, Consensus and EPS Surprise
Caterpillar Inc. price-consensus-eps-surprise-chart | Caterpillar Inc. Quote
Revenues Dip as Low Volumes Offset Prices
The company reported second-quarter revenues of around $16.69 billion, which missed the Zacks Consensus Estimate of $16.76 billion by a slight margin of 0.4%. The top line was 3.6% lower than the year-ago quarter as favorable price realization was offset by lower volumes reflecting changes in dealer inventories.
Improved results in the Energy & Transportation segment were offset by weaker performances in the Construction Industries and Resource Industries segments. Latin America and North America witnessed 5% and 1% year-over-year improvement, respectively, in sales. This was offset by a 16% sales decline in EAME and a 9% drop in sales in Asia Pacific.
Favorable Manufacturing Costs, Prices Aid Adjusted Margin Expansion
In the quarter under review, the cost of sales decreased 8% year over year to $10.2 billion. Gross profit improved 4.6% year over year to $6.5 billion on favorable manufacturing costs mainly due to lower freight costs. The gross margin was 39.2%, a 310 basis point expansion from 36.1% in the year-ago quarter.
Selling, general and administrative (SG&A) expenses increased 8% year over year to around $1.65 billion. Research and development (R&D) expenses were up 1.3% to $535 million. This was mainly due to CAT’s ongoing investments aligned with strategic initiatives.
CAT reported an operating profit of around $3.5 billion in the second quarter, a 4.7% decline from the year-ago quarter. Favorable price realization offset by lower volumes, in addition to higher restructuring costs and increased SG&A and R&D expenses, led to lower profits. The operating margin was 20.9%, down from 21.1% in the year-ago quarter.
Restructuring costs increased due to the divestiture of two non-U.S. entities. Excluding this, adjusted operating profit was $3.74 billion in the quarter, up 1.5% from $3.68 billion in the year-ago quarter as favorable price realization and manufacturing costs offset elevated SG&A and R&D expenses and lower volumes. The second-quarter adjusted operating margin was 22.4% compared with 21.3% in the year-ago quarter.
Segment Performances
Machinery and Energy & Transportation (ME&T) sales dipped 4.3% year over year to around $15.8 billion in the second quarter.
Construction Industries' sales were down 7% year over year to $6.68 billion on lower sales volume (due to changes in dealer inventories), somewhat offset by favorable price realization. Sales were up 20% in Latin America, remained flat in North America, plunged 27% in EAME and declined 15% in Asia Pacific.
The segment’s total sales were lower than our estimate of $6.8 billion, which had factored in a volume decline of 5.9% and pricing growth of 1.5%. The segment reported a volume decline of 8.3% and a favorable price impact of 2.5%, which led to the variance.
Sales in the Resource Industries segment were down 10% year over year to around $3.2 billion. Lower volumes, mainly due to changes in dealer inventories, offset favorable price realization. Sales were down 15% in EAME and 12% in Asia/Pacific. Sales were down 10% in North America and 3% in Latin America compared with the year-ago quarter.
The segment’s second-quarter sales were lower than our projection of $3.4 billion. We had expected the segment’s volume to decline 2.4% and pricing growth of 4%. The segment reported a 13.7% decline in volume, which was somewhat offset by a 3.8% favorable impact from pricing.
Sales of the Energy & Transportation segment were around $7.3 billion, reflecting growth of 2%, driven by favorable price realization, while volume dipped. The segment reported sales growth in Power Generation (15%), Oil and Gas (4%) and Transportation (7%), which was offset by a 21% decline in sales to the Industrial sector.
For the Energy & Transportation segment, our sales estimate was $5.96 billion, with volume growth of 0.7% and pricing of 0.6%. The segment, however, reported a 2.2% decline in volumes while pricing improved 4.4%.
The ME&T segment reported an operating profit of $3.66 billion, which reflected an increase of 3% year over year. The improvement was mainly led by the Energy & Transportation segment, which reported a 20% year-over-year increase in operating profit to $1.52 billion. The Construction Industries segment’s operating profit dipped 3% year over year to $1.74 billion. The Resource Industries segment’s operating profit was down 3% year over year to $0.7 billion.
Financial Products’ total revenues climbed 9% to $1 billion from the year-ago quarter due to higher average financing rates across all regions and increased average earning assets in North America. The segment reported an operating profit of $227 million compared with $240 million in the second quarter of 2023.
Cash Position
Operating cash flow was $3 billion for the second quarter. This brings Caterpillar’s operating cash flow for the first half of 2024 to around $5.1 billion compared with $4.8 billion in the year-ago comparable period. Through the first half of 2024, the company returned $7.6 billion to shareholders as dividends and share repurchases. CAT ended the quarter with cash and equivalents of around $4.3 billion, lower than the cash holding of around $7 billion at 2023-end.
Expectations for Q3 & 2024
The company anticipates sales in the third quarter to be lower than last year’s quarter. Dealer inventories of machines will be flat or dip slightly. Machine sales to end users will be lower compared with a stronger third quarter of 2023. Adjusted operating margin will be similar to the year-ago quarter. CAT had reported revenues of $16.8 billion and an adjusted operating margin of 20.8% in the third quarter of 2023.
Caterpillar expects revenues in 2024 to be slightly lower than the record 2023 revenues of $67 billion. Adjusted operating profit margin is expected to be above the company’s target range corresponding to the expected level of revenues. At revenues of around $64.5 billion, the projected adjusted operating profit target range is 16-20%.
Both adjusted operating profit and earnings per share are likely to be higher than previous expectations.
Caterpillar expects ME&T free cash flow to be in the top half of its targeted range between $7.5 billion and $10 billion.
Price Performance
Over the past year, the Caterpillar stock has risen 12.3% compared with the industry’s 9.8% growth.
Image Source: Zacks Investment Research
Manufacturing Stocks’ Performance in Q2
Terex Corporation (TEX - Free Report) reported earnings of $2.16 per share, which beat the Zacks Consensus Estimate of $2.03. This was 8% lower than earnings per share of $2.35 in the year-ago quarter. Over the trailing four quarters, the company surpassed consensus estimates for earnings thrice and came in line in one quarter, delivering an average surprise of 16.79%.
Terex’s revenues declined 1.5% year over year to $1.38 billion and missed the Zacks Consensus Estimate of $1.42 billion. Strong demand for Terex’s Genie products in North America was offset by lower demand in Europe, which primarily impacted the materials processing business.
H&E Equipment (HEES - Free Report) reported earnings per share of 91 cents, which missed the Zacks Consensus Estimate of $1.00. The bottom line marked a 20% decline from the year-ago quarter.
Revenues improved 4% year over year to $376.28 million, missing the Zacks Consensus Estimate of $389 million. Rental revenues rose 6.5% from the year-ago quarter, primarily due to the ongoing expansion of HEES’ branch network.
Zacks Rank & a Stock to Consider
Caterpillar currently carries a Zacks Rank #3 (Hold).
A better-ranked stock in the Industrial Products sector is Mueller Water Products (MWA - Free Report) , which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.
Mueller Water has an average trailing four-quarter earnings surprise of 64.1%. The Zacks Consensus Estimate for MWA’s fiscal 2024 earnings is pinned at 86 cents per share, which indicates year-over-year growth of 36.5%. Estimates have moved 1% north in the past 60 days. The company’s shares have risen 42.8% in the past year.