Amidst a global decline in construction demand, Caterpillar (CAT, Financial) reported third-quarter profits that fell short of analysts' expectations and revised its full-year revenue forecast downwards. The company's adjusted earnings per share came in at $5.17, missing the average analyst estimate of $5.34. Total sales decreased by 4% to $16.11 billion, slightly above the anticipated $16.08 billion.
Caterpillar is often seen as an economic bellwether due to the demand for its machinery across mining and construction sites, which reflects the health of these industries globally. Concerns over ongoing inflation and reduced agricultural funding have prompted U.S. machinery manufacturers to cut product inventory as dealers aim to lower stock levels. Additionally, high manufacturing costs have eroded profits. Caterpillar noted a slowdown in dealer purchases compared to the previous year.
The company's sales in its largest market, North America, declined, affecting two out of its three main business segments catering to construction and resource industries. In the Asia-Pacific region, overall sales dropped by 7%, reaching $2.68 billion. Caterpillar's adjusted operating profit margin for the quarter was 20%, down from 20.8% the previous year.
Following the earnings report, Caterpillar's share price fell over 6% in pre-market trading. Jefferies analysts highlighted a lackluster economic environment in the industrial sector, with little positive momentum beyond aerospace, data center expansion, and electrification.
Despite the challenges, Caterpillar's stock has risen more than 30% this year, marking the largest annual gain since 2017. The surge was partly driven by increased equipment demand following the pandemic, supported by President Biden's $1 trillion infrastructure law aimed at upgrading transportation infrastructure. However, the initial demand boost from government projects has slowed. Investors are now focusing on potential recovery in the Chinese market and the certainty of policies following the U.S. presidential election, which may favor new investments in industrial projects.
Looking ahead, Caterpillar has revised its full-year revenue guidance slightly below its August forecast, maintaining stable adjusted operating profit margins and annual per-share profit expectations. Price increases have helped offset some of the sales slowdown.
