What happened
Caterpillar (CAT 1.58%) used pricing power to offset soft demand in the most recent quarter, and is still fighting through supply chain issues. The results weren't bad, but investors sent the shares down as much as 5.6% in early Tuesday trading.
So what
Caterpillar's massive construction and mining equipment is vital to a number of different industries, but carries prices high enough that customers will sometimes defer new orders when times are tight. The company also has complex supply chains to manage. With that backdrop, investors were eager to see how Caterpillar fared in the second quarter.
Before markets opened, Caterpillar reported adjusted earnings of $3.18 per share on revenue of $14.25 billion. The earnings number beat analyst expectations for $3.01 per share, but the revenue figure was about $100 million less than consensus. Revenue was up 11% compared to the second quarter of 2021.
"Our team delivered another good quarter with double-digit top line and adjusted profit per share growth despite ongoing supply chain challenges," Chairman and CEO Jim Umpleby said in a statement. "Our second-quarter results reflect healthy demand across most of our end markets. We remain focused on executing our strategy for long-term profitable growth."
Operating profit margin came in at 13.6% in the quarter, down slightly from 13.9% in the same three months last year. Caterpillar reported enterprise free cash flow of $2.5 billion for the first half of 2022, which helped fund $1.1 billion of stock repurchases and $600 million worth of dividend payments in the second quarter.
Now what
Caterpillar says it expects sales to increase in the current quarter, and for profit margins to improve as pricing power offsets manufacturing cost increases. Demand from North America remains strong, helping to counter weakness in Europe and falling demand in Asia.
Though supply chains and some demand softness are items to watch, there isn't any reason for panic in these results and the stock sell-off appears overdone. Shares of Caterpillar were up about 10% in the weeks leading up to the earnings report, and Tuesday's stock reaction appears more a case of selling the news than it is anything specific about Caterpillar's results.
