Caterpillar Drops 5% Despite Exceeding Q4 Expectations

The world’s largest equipment maker Caterpillar Inc. (CAT) delivered robust fourth-quarter results surpassing both revenues and earnings estimates by a huge margin. The continued business momentum resulted in higher revenues in all three segments across all geographies.

However, shares of the American Fortune 100 company dropped 5.2% due to caution on margin pressures guided for the first quarter of fiscal 2022. Shares closed at $201.16 on January 28.

Robust Results

CAT reported adjusted earnings of $2.69 per share, up 26.9% year-over-year, significantly higher than analyst estimates of $2.28 per share.

Further, quarterly sales and revenue came in at $13.8 billion, growing 23% compared to the prior-year quarter, outpacing Street estimates of $13.2 billion. The robust sales growth was aided by higher end-user demand for equipment and services coupled with favorable dealer inventories and price realization.

Compared to Q4FY20, CAT’s Construction Industries segment revenue climbed 27%, Resource Industries revenue improved 27%, and Energy & Transportation revenue jumped 19%.

For the full year 2021, CAT reported adjusted earnings of $10.81 per share, much better than FY20 adjusted earnings of $6.56 per share. Fiscal 2021 sales and revenues jumped 22% annually to $51 billion.

Moreover, during 2021, CAT rewarded shareholders with $2.3 billion in dividends along with share buybacks worth $2.7 billion.

CEO Comments

Commenting on the results, Caterpillar Chairman and CEO, Jim Umpleby, said, “We delivered adjusted operating profit margins and Machinery Energy & Transportation free cash flows consistent with our long-term targets established during our 2019 Investor Day.”

Umpleby added, “Amid ongoing supply chain constraints, our team continues to execute our strategy for long-term profitable growth while striving to meet customer demand.”

Consensus View

Responding to CAT’s strong results, Cowen & Co. analyst Matt Elkott reiterated a Buy rating on the stock and a price target of $241, which implies 19.8% upside potential.

According to Elkott, despite lingering costs, strong demand and pricing helped Caterpillar surpass the consensus estimates. The analyst said, “Strong demand and pricing drove a revenue beat, but higher costs resulted in light margins. Operating margin pressure is to continue in 1Q22 relative to 1Q21; margins are expected to improve throughout 2022.”

Elkott concluded, “Strong demand and pricing drove a revenue beat, but higher costs resulted in light margins. Operating margin pressure is to continue in 1Q22 relative to 1Q21; margins are expected to improve throughout 2022.”

Overall, the stock has a Moderate Buy consensus rating based on 6 Buys, 3 Holds, and 1 Sell. The average Caterpillar price target of $237.50 implies 18.1% upside potential to current levels.

Blogger Opinions

TipRanks data shows that financial blogger opinions are 90% Bullish on CAT, compared to a sector average of 72%.

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