Interactive Investor

ii view: global bellwether Caterpillar details earnings beat

Boasting an enviable dividend growth track record and offering worldwide exposure to construction, mining, and energy. We assess prospects.

5th February 2024 16:04

Keith Bowman from interactive investor

Fourth-quarter results to 31 December  

  • Revenue up 3% to $17.1 billion
  • Adjusted earnings per share up 35% to $5.23
  • Quarterly dividend of $1.30 per share, unchanged from the previous quarter

Chief executive Jim Umpleby said:

“I'm very proud of our global team's strong performance as they achieved the best year in our 98-year history, including record full-year sales and revenues, record adjusted profit per share and record Machinery, Energy & Transportation (ME&T) free cash flow. We remain committed to serving our customers, executing our strategy and investing for long-term profitable growth.”

ii round-up:

Perceived economic bellwether Caterpillar Inc (NYSE:CAT) today detailed better-than-expected earnings, fuelled by increased demand for its energy and transportation products including data centre power generation equipment and train locomotives.

A 12% improvement in such sales to $7.6 billion versus the same quarter last year helped drive a more than one-third rise in overall adjusted earnings per share to $5.23, comfortably beating Wall Street forecasts of around $4.73 per share. 

Shares in the Dow Jones company rose 1% in early US trading having come into this latest news up by close to a quarter in 2023. That’s similar to tool maker Snap-on Inc (NYSE:SNA) and ahead of a near-14% gain for the Dow Jones itself.  

Caterpillar helps its customers pave roads, mine essential commodities and extract fuels to satisfy global energy demand. 

Total sales for the quarter to the end of December rose 3% to $17.1 billion, with 5% and 6% revenue declines at its other Construction and Resource Industries divisions, offsetting the improvement at Energy and Transportation. 

Geographically, an 11% sales gain in North America to $8.8 billion offset sales declines everywhere else. 

Annually, product price rises in 2023 fed into record sales of $67.1 billion, up from 2022’s $59.4 billion, pushing adjusted earnings to a record $21.21 per share. 

Shareholder returns for the full year including both dividends and share buybacks totalled $7.5 billion, up 2022’s $6.7 billion.  

First-quarter results are likely to be announced late April or early May. 

ii view:

Started in 1925 and headquartered in Irving, Texas, Caterpillar is today a maker of construction and mining equipment, off-highway diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. Employing over 100,000 people, its home US market generates its biggest slug of sales at around two-fifths, followed by Europe and Africa and Asia Pacific each at around a fifth and Latin America at just over a tenth. 

For investors, elevated interest rates and slowdown in Chinese economic growth now offer outlook uncertainty for both its Construction and Resource Industries divisions. Costs generally for businesses remain elevated, environmental concerns overshadowing energy generation warrant consideration, while a current net asset value-to-share price ratio above the three-year average suggests the shares are not obviously cheap. 

On the upside, diversity of both product and geographical region often leave challenges for one area countered by positives for another. Product price rises have helped offset elevated costs, cash of $7 billion is held, while a record of increasing the annual total dividend for more than 25 years is enviable and leaves the shares offering a modest forecast yield of around 1.6% (not guaranteed). 

For now, and while some caution remains sensible, this giant of the industrial machinery world still looks to justify its place in diversified investor portfolios.     

Positives: 

  • Product and geographical diversity
  • More than 25 years of consecutive annual dividend increases

Negatives:

  • Subject to currency moves
  • Uncertain economic outlook

The average rating of stock market analysts:

Strong hold

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