Why Is Caterpillar Stock Shooting Higher Today?

Construction and mining equipment manufacturer Caterpillar Inc CAT reported a fourth-quarter fiscal 2023 revenue increase of 3% year-over-year to $17.07 billion, missing the consensus of $17.11 billion. 

CAT’s adjusted earnings of $5.23 per share, compared to $3.86 a year ago, topped the consensus of $4.75.

Favorable price realization, higher Financial Products’ segment revenues, and favorable currency impact primarily related to the euro, led to the sales increase, offset by lower sales volume.

Caterpillar states that the decrease in sales volume was driven by the impact of changes in dealer inventories, partially offset by higher sales of equipment to end users. 

Dealer inventory decreased by $900 million during the quarter, compared with an increase of $700 million in 2022.

Adjusted operating profit margin was 18.9% for the quarter, up from 17% YoY.

Machinery, Energy & Transportation segment revenue increased 2.3% Y/Y, with Construction Industries down 5%, Resource Industries down 6%, Energy & Transportation up 12%, and Other Segments up 5%.

Financial Products revenues increased by 14.7% Y/Y to $833 million.

The fiscal 2023 operating cash flow was $12.9 billion. The company ended the quarter with $7 billion of enterprise cash.

The company returned $7.5 billion to shareholders through share repurchases and dividends in 2023.

2024 Outlook: Caterpillar anticipates sales and revenues to be broadly similar to 2023.

The company sees no significant change in machine dealer inventory by the end of 2024, as compared to a build in 2023.

The company expects 2024 full-year ME&T free cash flow to be in the top half of the $5 billion-$10 billion. The company anticipates another year of services growth as it continues to target $28 billion by 2026.

Goldman Sachs analyst Jerry Revich notes that CAT’s fourth quarter results are positive, with a substantial EPS beat and a $900 million inventory cut, surpassing their expectations by $450 million. Despite risks to 2024’s retail demand growth forecast, Caterpillar is poised for improved margins and cash flow after a strong quarter.

Revich states that Caterpillar 2024 outlook comments in the slide deck imply flat operating income. He added that CAT’s guidance implies combined pricing and retail demand growth of $1.7 billion to offset flat dealer inventories in 2024E vs. a $1.7 billion build in 2023.

The analyst at Goldman reaffirmed their 12-month price target of $274, grounded on a 20x multiple of their mid-cycle EPS forecast of $13.70.

Price Action: CAT shares are trading higher by 1.72% at $320.76 on Monday.

Photo via Wikimedia Commons