Caterpillar's stock dives as light sales outlook, backlog drop offset a big profit beat

By Tomi Kilgore

Caterpillar stock shaves 95 points off the Dow's price as it heads for worst day in 18 months

Shares of Caterpillar Inc. sank Tuesday, as investors focused more on the construction and mining equipment maker's "slightly light" sales outlook than the big third-quarter profit beat.

The stock (CAT) initially rose as much as 4.7% in the premarket after the results were reported before quickly pulling a sharp U-turn. The stock was last down 6% in morning trading, as it headed for the lowest close since June 6, and the worst one-day performance since it shed 7% on April 22, 2022.r

The stock's $14.42 price decline was shaving about 95 points off the Dow Jones Industrial Average's price DJIA, while the Dow was down 37 points, or 0.1%.

Net income rose to $2.79 billion, or $5.45 a share, from $2.04 billion, or $3.87 a share, in the same period a year ago. Excluding nonrecurring items, adjusted earnings per share of $5.52 was well above the FactSet consensus of $4.80.

Revenue grew 12.1% to $16.81 billion, to beat the FactSet consensus of $16.57 billion.

Construction Industries revenue grew 12% to $7.00 billion to beat the FactSet consensus of $6.60 billion and Energy and Transportation revenue increased 11% to $6.86 billion to top expectations of $6.53 billion, while Resource Industries revenue rose 9% to $3.35 billion to just miss expectations of $3.39 billion.

In a presentation revealed on the company's website, the company said that third-quarter order backlog was $1.9 billion lower than a year ago and decreased $2.6 billion from the second quarter.

Also, Caterpillar said fourth-quarter revenue is expected to be "slightly higher" than a year ago, while the FactSet consensus of $17.45 billion implies 5.1% growth.

D.A. Davidson analyst Michael Shlisky said that while Caterpillar didn't provide "pinpoint guidance," the revenue outlook appears "slightly light." He reiterated his neutral rating on the stock.

And adjusted operating profit margin for the fourth quarter is expected to be "lower" than the third quarter, which was reported to be 20.8%, up from 16.5% from a year ago but down from 21.3% in the second quarter.

TD Cowen's Matt Elkott said despite the "all-around beat" for the third quarter, the fact that backlog fell at the same time sales volume moderated could be a drag on the stock. He kept his rating at outperform.

Coming into the earnings report, analysts were upbeat about the third-quarter results while investors were cautious, given the recent history of disappointment. Basically, the results and outlook suggest both analysts and investors were right.

Caterpillar's stock has tumbled 14.1% over the past three months, while the Dow has lost 7.5%.

-Tomi Kilgore

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10-31-23 1157ET

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