Shares of Caterpillar (CAT 0.05%) slumped a little over 5% Thursday morning and were still trading around 4.8% lower as of 12:30 p.m. ET.
Although the construction and mining giant beat earnings estimates for its fourth quarter, its revenue fell short of analysts' estimates yet again. Caterpillar's outlook, however, spooked investors, raising concerns about whether the stock will be able to maintain momentum after rallying 23% in 2024.
Decelerating sales but steady cash flows
Here are some key numbers from Caterpillar's fourth-quarter and full-year earnings report (all changes are year over year):
- Revenue: Down 5% in Q4 and 3% in 2024
- Operating margin: 18% in Q4 and 20.2% in 2024. Full-year margin was up from 19.3%
- Earnings per share (EPS): Up around 10% each in Q4 and the full year
- Machinery, energy, and transportation (ME&T) free cash flow (FCF): Down from $10 billion in 2023 to $9.4 billion in 2024
Caterpillar reports ME&T cash flows separately since it also has a financial arm. While sales from Caterpillar's construction industries and resource industries (mining) segments declined 8% and 9% respectively in the fourth quarter, its energy and transportation (E&T) business was a saving grace. Sales from E&T were flat thanks to higher pricing, and it also reported profit growth, unlike Caterpillar's other two segments.
Although Caterpillar's FCF fell in 2024, it was still near the top end of the company's guidance of $5 billion to $10 billion.
NYSE: CAT
Key Data Points
Why is Caterpillar stock falling, and what's next?
Caterpillar's 2024 numbers weren't nearly as bad, but it expects "slightly lower" revenue in 2025 versus $64.8 billion generated last year. Management doesn't foresee a major change in dealer inventory by the end of the year. Caterpillar sells equipment through its extensive global dealership network, and no or a small change in inventory on the dealers' end would mean fewer equipment purchases.
Uncertainty under the Trump administration is one of the reasons Caterpillar anticipates softer sales this year, especially amid persistently high interest rates that have already made borrowing costly for dealers.
Given the backdrop, Caterpillar stock could remain under pressure in the short term. For the long term though, Caterpillar remains a top blue chip stock to own given its leadership in construction, mining equipment, and off-highway engines, as well as its financial fortitude and earnings and dividend track record.
