Caterpillar shares fall after warning of slowing second-quarter sales

(Bloomberg) — Caterpillar Inc. reported first-quarter results that showed machinery sales declining from a year earlier and warned that trend is expected to continue in the second quarter.

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Caterpillar shares fell as much as 9.1% in New York, the biggest intraday drop in four years, after the heavy equipment maker said in its earnings report that it expects second-quarter sales to be lower than the same period a year earlier. While the company reported adjusted earnings that beat analysts' estimates, sales declined at its key construction and resources industries divisions, and overall revenues continued to show weakness outside North America.

Caterpillar Inc. is widely viewed as an economic leader, as demand for its iconic yellow machines dotting mines and construction sites could highlight the health of those industries around the world. Caterpillar reported adjusted earnings of $5.60 per share during the first quarter, beating the average estimate of analysts surveyed by Bloomberg of $5.13 per share.

“Underlying profitability was better than expected, although a larger-than-expected increase in dealer inventory combined with weak retail sales will likely raise concerns about production schedules,” Christopher Ciolino, a Bloomberg Intelligence analyst, said in a note.

Caterpillar Inc., one of the world's largest producers of heavy machinery, has benefited from strong earnings over the past three years, beating expectations in nearly every quarter since 2020, often by generating better-than-expected revenue.

“We expect continued healthy demand in most of our end markets for our products and services,” CEO Jim Umbleby said during Thursday's earnings call.

He reiterated the company's guidance in February that sales and revenues in 2024 would be broadly similar to last year's record level. Caterpillar does not expect a significant change in machinery dealer inventory this year, which “is expected to be a headwind to sales in 2024,” Umbleby said.

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Moderating manufacturing demand in regions including Asia and Europe coupled with a slowdown in non-residential construction presents a challenge for machinery manufacturers such as Caterpillar, although increased industrial activity in the United States and China shows promising signs for the future.

Sales and revenue in the latest first quarter were $15.8 billion, slightly lower than the first quarter of 2023, with favorable pricing mostly offsetting lower sales volume, the company said.

Strong earnings from North America – Caterpillar's most important market – helped the company offset weakness from other regions, including Europe, Latin America and Asia in previous quarters. This trend continued in the first quarter. Caterpillar's Energy and Transportation business also reported a 7% increase in sales and revenue, the only segment to see an increase.

(Adds CEO comments from call and stock opening.)

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