Caterpillar's stock rises toward a record after another big profit beat

By Tomi Kilgore

Sales rose above forecasts due to higher pricing, strength in the energy and transportation business

Shares of Caterpillar Inc. rallied further into record territory Monday, after the maker of construction and mining equipment reported fourth-quarter profit that rose well above forecasts, with particular strength in its energy and transportation business.

And for the full-year, the company said sales reached the highest level in the company's 98-year history, reflecting higher prices and increased volume.

Looking ahead, Caterpillar said that it expects demand for nonresidential construction to continue at current levels amid government-related infrastructure investments, and residential construction is expected to remain "healthy."

Outside of the U.S., there has been "some softening" in Asia, excluding China, while demand from China is expected to remain at "a relatively low level" and Europe demand may be hampered by economic uncertainty.

Caterpillar's stock (CAT) climbed 2% in morning trading, after closing at record highs the previous two sessions. The stock pared earlier gains of a much as 6.3%, at its all-time intraday record high of $334.87.

The stock's price gain added about 41 points to the price of the Dow Jones Industrial Average DJIA, while the Dow sank 225 points, or 0.6%.

For the quarter to Dec. 31, net income climbed to $2.68 billion, or $5.28 a share, from $1.45 billion, or $2.79 a share, in the same period a year ago.

Excluding nonrecurring items, adjusted earnings per share of $5.23 beat the FactSet consensus of $4.76. That marked the fourth straight quarter adjusted EPS was a double-digit percentage above expectations.

Revenue grew 2.8% to $17.07 billion, just above the FactSet consensus of $17.06 billion, as higher prices and favorable currency translation offset lower sales volume.

"For the year, we delivered record sales and revenues, record adjusted profit margin, record adjusted profit per share and record free cash flow," said Chief Executive Jim Umpleby, according to an AlphaSense transcript of the post-earnings conference call with analysts. "Our results continue to reflect healthy demand across most of our end markets for our products and services."

Among the company's business segments, construction industries sales fell 5% to $6.85 billion, just below expectations of $6.88 billion, as dealer inventories decreased. The largest decrease was in excavators.

Resource industries sales declined 6% to $3.44 billion, but were above expectations of $3.29 billion. For 2024, the company expects lower order rates than in 2023, "as customers display capital discipline."

Meanwhile, energy and transportation sales jumped 12% to $6.82 billion to beat forecasts of $6.7 billion. Power generation sales remained positive due strong data-center growth.

Free cash flow was $3.2 billion for the quarter, which was below the FactSet consensus of $4.33 billion. Looking ahead, the company raised its immediate target range to $5 billion to $10 billion from $4 billion to $8 billion.

"We...continue to expect to return substantially all of our free cash flow to shareholders over time, through dividends and share repurchases," said Chief Financial Officer Andrew Bonfield.

Caterpillar's stock has soared 33.5% over the past three months through Friday, while the Dow has advanced 12.8%.

-Tomi Kilgore

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02-05-24 1019ET

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