Caterpillar
stock is at a crossroads. Results are fine, but investors are worried about the economy. Thursday should shed some light on which way shares will turn.
The construction equipment giant is due to report first-quarter results on Thursday morning before the market opens for trading. Wall Street is looking for $3.80 a share from $15.1 billion in sales. A year ago, Cat (ticker: CAT) reported $2.88 a share from $13.6 billion in sales.
Wall Street expects full-year sales to come in at about $63 billion, which means operating profit margins should fall between 16% and 18%. Operating profit margins depend on sales because more sales means more machines sold which means better utilization of Cat’s plants and equipment.
In the fourth quarter, Cat’s construction-related sales increased 19% year over year. Sales to resource industries, such as mining, increased 26% and sales to energy industries also increased 19%.
Sales should be up year over year again, which is good, but it might not be enough for investors. Baird analyst Mig Dobre described this quarter as a tug of war in a recent research report. “Good earnings are colliding with negative investor sentiment,” he wrote. That goes for all the industrial and machinery stocks he covers.
That is the scenario he sees for Cat, writing an earnings beat is possible. Still, “we see increasing likelihood of a 2024 [commercial] construction slowdown coupled with mounting fundamental headwinds.” Those include peaking order backlog, tighter credit conditions and the price/cost spread compressing.
It will be interesting to see how investors react to results and whether earnings or the outlook dominate investors’ thinking. The company hosts a conference call at 8:30 a.m. Eastern time.
Cat stock is down about 10% year to date, but shares are up about 3% over the past 12 months. That’s very close to the performance of the
S&P 500
and
Dow Jones Industrial Average
over that period.
Write to Al Root at allen.root@dowjones.com
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