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Despite Upbeat Q2 Earnings, Caterpillar Loses Investors’ Interest

Story Highlights

Caterpillar has delivered better-than-expected earnings for the second quarter of 2022. However, the company missed sales estimates, which shook investors’ confidence and CAT stock declined 3.8% in the pre-market trading session on Tuesday.

Farm and construction equipment maker Caterpillar Inc. (NYSE: CAT) has reported mixed results for the second quarter of 2022. Its earnings beat in the quarter was 5.6%, while sales surprise stood at (1.4%).

Shares of this $103.9-billion company slipped 3.8% in Tuesday’s pre-market trading session, at the time of writing. It is worth mentioning that the stock declined 1.8% to close at $194.86 on Monday.

A Snapshot of Caterpillar’s Q2 Results

In the quarter, the company’s adjusted earnings were $3.18 per share, above the consensus estimate of $3.01 per share. Also, the bottom line increased 22.3% from the year-ago tally of $2.60 per share.

Revenues totaled $14.2 billion, down from the consensus estimate of $14.4 billion. However, the top line expanded 10.1% year-over-year, driven by higher volumes and favorable pricing in the quarter.

Segment-wise, sales of Construction Industries grew 7% year-over-year, while revenues of Resource Industries and Energy & Transportation advanced 16% and 15%, respectively. Sales of the Financial Products segment surged 3% from the year-ago quarter.

Geographically, revenues increased 18% in North America, 27% in Latin America, and 3% in Asia-Pacific. However, sales decreased 3% in EAME.

Total operating expenses in the quarter grew 10.8% year-over-year to $12.3 billion. The operating margin was 13.6%, down from 13.9% a year ago. Supply-chain challenges and cost inflation were spoilsports in the quarter.

Capital Allocation by Caterpillar

Caterpillar generated a net cash flow of $2.55 billion from its operating activities in the first half of 2022, while its cash and cash equivalents at the end of the period were $6 billion. From its available resources, the company used $0.59 billion on capital expenditures and $4.25 billion to repay debts. Long-term debt stood at $26.22 billion at the end of the first half.

Also, the company distributed dividends of $1.19 billion and bought back shares worth $1.92 billion in the first half of 2022.

Caterpillar’s Projections for Q3 & 2H22

For the third quarter of 2022, Caterpillar anticipates revenues to gain from favorable pricing and higher sales to users.

The operating margin is forecast to improve in the second half of 2022. Improved price realizations are predicted to offset the adverse impacts of an increase in manufacturing costs.

Wall Street Is Cautiously Optimistic, but Bloggers Are Bullish on CAT

On TipRanks, Caterpillar has a Moderate Buy consensus rating based on 10 Buys, four Holds, and one Sell. CAT’s average price target of $225.43 mirrors upside potential of 15.69% from the current level. Over the past year, CAT stock has decreased 5%.

According to TipRanks, financial bloggers are 87% Bullish on CAT stock versus the sector average of 68%.

Key Takeaways for CAT Investors

Cost inflation and supply-chain bottlenecks are problems for Caterpillar that might reflect on its performance in the quarters ahead. However, higher sales to users, expansion of operations globally, and effective pricing actions could drive the top line and margins of Caterpillar. Healthy rewards to shareholders add to the stock’s appeal.

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