Caterpillar reports double-digit rise in profits in Q3

Caterpillar reported a double-digit rise in profit in the third quarter, beating Wall Street estimates on solid construction equipment sales in North America. Still, its shares slid in early trading on signs of slowing machinery demand, Reuters reports.

The Texas-based manufacturer’s shares fell as much as 6.3 percent as dealer inventories rose for the third consecutive quarter when Caterpillar’s order backlog shrunk, indicating that equipment demand may have peaked.

The construction equipment maker's order backlog fell $2.6 billion over the quarter.

“The order backlog fell ... which is a good leading indicator that demand is slowing,” Matt Britzman, equity analyst at Hargreaves Lansdown, tells Reuters.

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Chief Financial Officer Andrew Bonfield said during the company’s Q3 earnings call that dealer inventories for construction equipment are “within the typical three-to-four-month sales range.”

“There are still areas and products where dealers would like to have more inventory,” he said, adding that Caterpillar is very comfortable with inventory levels.

Construction equipment demand had been resilient as the U.S. upgraded its roads, railways and other transportation infrastructure under a $1 trillion package approved by Congress in 2021 under the Biden administration. Caterpillar’s profit has also benefited from effective cost controls and price hikes shielding margins amid ongoing inflationary pressures, according to the company.

Machinery, Energy and Transportation equipment profits rose 48 percent from the year prior.

Executives reiterated that demand for heavy machinery from construction and mining industries was expected to drive full-year operating margin slightly above its targeted range. The company had forecast an adjusted operating profit margin between 10-13 percent and 18-21 percent when it reported fourth-quarter results on Jan. 31.

Caterpillar’s sales and revenue were up across all equipment segments, with its construction division recording the highest bump, a 12 percent increase.