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Why Is Caterpillar (CAT) Down 0.4% Since Last Earnings Report?
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It has been about a month since the last earnings report for Caterpillar (CAT - Free Report) . Shares have lost about 0.4% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Caterpillar due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Caterpillar Q4 Earnings Miss Estimates, Sales Beat
Caterpillar reported fourth-quarter 2022 adjusted earnings per share of $3.86, which missed the Zacks Consensus Estimate of $3.95 by a margin of 2%. The bottom-line figure marked a 43.5% improvement year on year. Despite unfavorable manufacturing costs, strong demand across most end markets and favorable price realization led to an improvement in CAT’s earnings for the quarter.
Including one-time items, Caterpillar’s earnings per share were $2.79, down 29% from the prior-year quarter’s $3.91.
Revenues Up On Higher Volumes & Price Realization
The company reported fourth-quarter revenues of around $16.6 billion that surpassed the Zacks Consensus Estimate of $15.9 billion. The top line improved 20% from the year-ago quarter on favorable price realization and increased sales volumes.
Higher sales of equipment to end users as well as dealers adding to the inventories, led to the improvement in sales volumes. Unfavorable currency impacts related to the euro, Australian dollar and Japanese yen had a dampening effect. Sales growth was noted across all segments.
Higher Sales Offset Cost Impact on Margins
In the quarter under review, the cost of sales increased 16% year over year to around $11.6 billion. Manufacturing costs were higher in the quarter due to inflated material costs as well as unfavorable cost absorption and increased period manufacturing costs. Gross profit improved 31% year over year to $4.98 billion aided by higher sales volumes. The gross margin was 30% in the quarter under review, up from 27.5% in the prior-year quarter.
Selling, general and administrative (SG&A) expenses increased 4% year over year to around $1,479 million. Research and development (R&D) expenses were down 9% to $401 million.
CAT reported an operating profit of $1,680 million in the fourth quarter of 2022 compared with $1,611 million in the last year’s quarter. Gains from increased volumes and favorable price realization were offset by a goodwill impairment charge, higher manufacturing costs and restructuring expenses.
The operating margin was 10.1% in the reported quarter, down from 11.7% in the prior-year quarter. Adjusted operating profit was $2,814 million in the quarter, up 78% from $1,577 million in the last year’s quarter. The adjusted operating margin was 17% in the fourth quarter of 2022 versus 11.4% in the year-ago quarter.
Solid Segment Performances
Machinery and Energy & Transportation (ME&T) sales rose 21% year over year to $15.9 billion in the quarter under review. Construction Industries' sales were up 19% year over year to $6.8 billion on favorable price realization and higher volumes, somewhat offset by unfavorable currency impacts. Sales were up 39% in Latin America, 34% in North America and 10% in EAME. Asia/Pacific witnessed a decline of 10% in sales mainly due to unfavorable currency impacts.
Sales in the Resource Industries segment gained 26% year over year to around $3.4 billion on higher sales volume and improved price realization. Growth was noted across all regions, led by North America with 59% year-over-year growth followed by Latin America registering 21%. EAME and Asia Pacific delivered growth of 12% and 5% respectively.
Sales of the Energy & Transportation segment in the quarter were around $6.8 billion, reflecting growth of 19% on higher sales volume and favorable price realization. The segment reported sales growth across all applications – Oil and Gas (38%), Industrial (19%), Power Generation (12%) and Transportation (6%).
The ME&T segment reported an operating profit of $1,629 million, which reflected an improvement of 10% year over year. The Construction Industries segment witnessed an 87% surge in operating profit to $1,488 million. The Resource Industries segment’s operating profit soared 110% year over year to $605 million in the fourth quarter. The Energy & Transportation segment’s operating profit increased 72% year over year to $1,177 million.
Favorable price realization and elevated sales volume across all segments helped offset the impact of higher costs, resulting in the improvement in respective segments’ profits.
Financial Products’ total revenues climbed 10% to $853 million from the prior-year quarter due to higher average financing rates. The segment's profits were $189 million in the reported quarter, a 24% decline year on year, mainly due to higher provision for credit losses at Cat Financial and an unfavorable impact from equity securities in Insurance Services.
Cash Position
During 2022, Caterpillar’s operating cash flow was $7.8 billion compared with $7.2 billion in the prior year. The company returned $6.7 billion to shareholders through dividends and share repurchases in 2022. CAT ended 2022 with cash and equivalents of $7 billion.
2022 Performance
Adjusted earnings per share increased 28% year over year to $13.84 but missed the Zacks Consensus Estimate of $13.94. Including one-time items, Caterpillar’s earnings per share were $12.64 for the year compared with $11.83 reported in 2021.
The company reported revenues of around $59.4 billion that beat the Zacks Consensus Estimate of $58.7 billion. The figure also marked a 16.5% improvement from the last year aided by favorable price realization and higher sales volume.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 5.04% due to these changes.
VGM Scores
At this time, Caterpillar has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Caterpillar has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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Why Is Caterpillar (CAT) Down 0.4% Since Last Earnings Report?
It has been about a month since the last earnings report for Caterpillar (CAT - Free Report) . Shares have lost about 0.4% in that time frame, outperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Caterpillar due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.
Caterpillar Q4 Earnings Miss Estimates, Sales Beat
Caterpillar reported fourth-quarter 2022 adjusted earnings per share of $3.86, which missed the Zacks Consensus Estimate of $3.95 by a margin of 2%. The bottom-line figure marked a 43.5% improvement year on year. Despite unfavorable manufacturing costs, strong demand across most end markets and favorable price realization led to an improvement in CAT’s earnings for the quarter.
Including one-time items, Caterpillar’s earnings per share were $2.79, down 29% from the prior-year quarter’s $3.91.
Revenues Up On Higher Volumes & Price Realization
The company reported fourth-quarter revenues of around $16.6 billion that surpassed the Zacks Consensus Estimate of $15.9 billion. The top line improved 20% from the year-ago quarter on favorable price realization and increased sales volumes.
Higher sales of equipment to end users as well as dealers adding to the inventories, led to the improvement in sales volumes. Unfavorable currency impacts related to the euro, Australian dollar and Japanese yen had a dampening effect. Sales growth was noted across all segments.
Higher Sales Offset Cost Impact on Margins
In the quarter under review, the cost of sales increased 16% year over year to around $11.6 billion. Manufacturing costs were higher in the quarter due to inflated material costs as well as unfavorable cost absorption and increased period manufacturing costs. Gross profit improved 31% year over year to $4.98 billion aided by higher sales volumes. The gross margin was 30% in the quarter under review, up from 27.5% in the prior-year quarter.
Selling, general and administrative (SG&A) expenses increased 4% year over year to around $1,479 million. Research and development (R&D) expenses were down 9% to $401 million.
CAT reported an operating profit of $1,680 million in the fourth quarter of 2022 compared with $1,611 million in the last year’s quarter. Gains from increased volumes and favorable price realization were offset by a goodwill impairment charge, higher manufacturing costs and restructuring expenses.
The operating margin was 10.1% in the reported quarter, down from 11.7% in the prior-year quarter. Adjusted operating profit was $2,814 million in the quarter, up 78% from $1,577 million in the last year’s quarter. The adjusted operating margin was 17% in the fourth quarter of 2022 versus 11.4% in the year-ago quarter.
Solid Segment Performances
Machinery and Energy & Transportation (ME&T) sales rose 21% year over year to $15.9 billion in the quarter under review. Construction Industries' sales were up 19% year over year to $6.8 billion on favorable price realization and higher volumes, somewhat offset by unfavorable currency impacts. Sales were up 39% in Latin America, 34% in North America and 10% in EAME. Asia/Pacific witnessed a decline of 10% in sales mainly due to unfavorable currency impacts.
Sales in the Resource Industries segment gained 26% year over year to around $3.4 billion on higher sales volume and improved price realization. Growth was noted across all regions, led by North America with 59% year-over-year growth followed by Latin America registering 21%. EAME and Asia Pacific delivered growth of 12% and 5% respectively.
Sales of the Energy & Transportation segment in the quarter were around $6.8 billion, reflecting growth of 19% on higher sales volume and favorable price realization. The segment reported sales growth across all applications – Oil and Gas (38%), Industrial (19%), Power Generation (12%) and Transportation (6%).
The ME&T segment reported an operating profit of $1,629 million, which reflected an improvement of 10% year over year. The Construction Industries segment witnessed an 87% surge in operating profit to $1,488 million. The Resource Industries segment’s operating profit soared 110% year over year to $605 million in the fourth quarter. The Energy & Transportation segment’s operating profit increased 72% year over year to $1,177 million.
Favorable price realization and elevated sales volume across all segments helped offset the impact of higher costs, resulting in the improvement in respective segments’ profits.
Financial Products’ total revenues climbed 10% to $853 million from the prior-year quarter due to higher average financing rates. The segment's profits were $189 million in the reported quarter, a 24% decline year on year, mainly due to higher provision for credit losses at Cat Financial and an unfavorable impact from equity securities in Insurance Services.
Cash Position
During 2022, Caterpillar’s operating cash flow was $7.8 billion compared with $7.2 billion in the prior year. The company returned $6.7 billion to shareholders through dividends and share repurchases in 2022. CAT ended 2022 with cash and equivalents of $7 billion.
2022 Performance
Adjusted earnings per share increased 28% year over year to $13.84 but missed the Zacks Consensus Estimate of $13.94. Including one-time items, Caterpillar’s earnings per share were $12.64 for the year compared with $11.83 reported in 2021.
The company reported revenues of around $59.4 billion that beat the Zacks Consensus Estimate of $58.7 billion. The figure also marked a 16.5% improvement from the last year aided by favorable price realization and higher sales volume.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 5.04% due to these changes.
VGM Scores
At this time, Caterpillar has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. Following the exact same course, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Caterpillar has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.