Caterpillar beats profit estimates on strong equipment demand; shares rise By Stocksak

© Stocksak. FILE PHOTO: Caterpillar Inc. equipment on display at a San Diego retail site, California, U.S.A, March 3, 2017. REUTERS/Mike Blake

By Bianca Flowers & Aishwarya Naair

(Stocksak) -Heavy-equipment maker Caterpillar Inc (NYSE 🙂 on Thursday beat Wall Street estimates of profit and revenue for the third quarter. This was due in part to price increases and strong orders from energy and mining customers.

After reporting net income of $2.04 Billion, the world’s biggest construction and mining equipment manufacturer, shares rose 8.5%. Analysts had predicted that it would earn $1.68 billion. According to Refinitiv, the industrial bellwether’s revenue grew to $15 billion, surpassing predictions of $14.3 billion.

Caterpillar, a company based in Deerfield, Illinois, raised prices to alleviate supply chain constraints and rising freight and raw material costs. This helped cushion profits.

Andrew Bonfield, Chief Financial Officer, stated that “we are wrapping some price increases we saw in the 3rd quarter – 4th quarter of last year” during a conference call with analysts. “We will see a slight moderation in price in the fourth quarter. Still very strong.”

Executives stated that labor costs and manufacturing inefficiencies are still challenges.

Chief Executive Jim Umpleby stated that “they’ve gotten worse than they got better in the previous quarter.”

Umpleby stated that despite semiconductor and parts shortages, the company continues seeing healthy demand and meeting margin targets.

Although the company is vulnerable to currency headwinds from global recession fears and concerns, strong demand has “more than offset” uncertain economic conditions, according to Matt Arnold, an analyst with Edward Jones.

Operating margins increased across all three core divisions of the company, with construction leading with a 19.4% increase over the previous year.

Caterpillar had seen a drop in China’s excavators sales in the last quarter. China is a major growth market.

The revenue for construction equipment in Asia Pacific rose 1% over the previous year. The manufacturer’s margins have been impacted by China’s slumping sales as developers stopped or delayed construction of pre-sold homes due to debt woes.

The slow release of China’s economic data revealed that the economy was losing momentum due to COVID-19 lockdowns and falling property values. This also led to constrained consumption, which slowed the world’s second-largest economy.

The first half of the year saw drilling activity rise amid rising oil and gas prices. Caterpillar’s resource segment saw the largest increase in sales, up 30 percent.

Caterpillar’s adjusted profits rose to $3.95/share, exceeding estimates of $3.16/share.

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