Caterpillar (CAT 0.39%) delivered mixed first-quarter results and warned of demand softness in the quarters to come. Investors are not impressed, sending shares down as much as 9% on Thursday morning.
Slow end markets eat into growth
Caterpillar makes the heavy equipment used in construction and mining. It is a great business when times are good for its customers, but big-ticket equipment purchases tend to get deferred when customers are uncertain about their outlook.
Caterpillar earned $5.60 per share in the first quarter, beating Wall Street's $5.14-per-share consensus estimate, despite sales that came in about $200 million short of consensus at $15.8 billion.
The company was able to offset lower sales volume with strong pricing and a focus on costs. Operating profit margin was 22.3% for the first quarter of 2024, compared with 17.2% for the first quarter of 2023.
Things are not expected to get easier in the quarters to come. Management sees second-quarter sales coming in lower than the $17.3 billion it recorded in the period last year and said full-year 2024 revenue should be "broadly similar" to the $67.1 billion in sales from 2023.
The guidance is in line with expectations, but the lack of growth is still a disappointment. In 2023, Caterpillar grew sales by 13%.
Is Caterpillar a buy following its earnings release?
Caterpillar is reliant on customers that are cyclical businesses, and there is little the company can do to spark growth during periods where demand softens. But the company remains a cash-generation machine and does a good job deploying that cash to shareholders.
In the quarter, Caterpillar repurchased about $4.5 billion worth of shares and paid out $600 million in dividends. Over the past decade, the company has reduced its share count by about 20%.
Investors buying in will not get tech-stock-like growth, but they will get a high-quality operator with reliable returns and the potential for upside when market conditions improve. Any weakness here could be a good chance for long-term-focused investors to buy in.
