Caterpillar rises despite lower sales in Q2

Caterpillar (CAT.US) gains after solid results for the second quarter of 2024

Caterpillar is up almost 2% following the release of its second quarter 2024 results, which exceeded analysts' expectations. The heavy equipment manufacturer reported a decline in revenue but improved margins and adjusted earnings per share.

Key financial data:

• Revenue: $16.69 billion
  • Down 3.6% year-over-year from $17.32 billion in Q2 2023
  • Below analysts' expectations of $16.95 billion
• Adjusted earnings per share (EPS): $5.99
  • Up 7.9% year-over-year from $5.55 in Q2 2023
  • Beat analysts' expectations of $5.53
• Adjusted operating profit: $3.74 billion
  • Above estimates of $3.48 billion

Segment results:

• Machinery, Energy & Transportation segment revenue: $15.84 billion
  • Down 4.3% year-over-year
  • Below expectations of $16.11 billion
• Financial segment revenue: $849 million
  • Up 9.8% year-over-year
  • Above expectations of $819.5 million

Regional results:

• North America: sales up 1%
• Asia Pacific: sales down 9%
• Europe, Africa and Middle East: sales down 16%
• Latin America: sales up 5%

Caterpillar reported particularly strong results in the energy and transportation segment. Despite lower sales, the company raised its forecasts for adjusted operating profit and earnings per share for the full year 2024.

Higher prices for Caterpillar equipment helped offset rising production costs. Sales in North America increased by 1%, while sales in the construction equipment segment remained unchanged in this region. Benefits from President Biden's 2021 infrastructure bill are beginning to diminish.

The decline in sales in the Asia Pacific region was partly due to problems in the Chinese real estate market and a weak Japanese yen.

The company expects sales and revenue for the full year 2024 to be slightly lower than in 2023, but anticipates that the adjusted operating profit margin will exceed the upper end of the targeted range. Caterpillar also expects a slight reduction in dealer machine inventories throughout the year.

In the second quarter of 2024, Caterpillar allocated $2.5 billion for share buybacks and dividend payments. The company's order backlog increased by $0.7 billion compared to the first quarter.

Caterpillar's CEO emphasized that the results reflect the benefits of the company's diverse end markets and disciplined execution of its strategy.

Analyst forecasts: Caterpillar has 25 recommendations, of which 10 are "buy" with the highest target price of $464, 12 are "hold", and 3 are "sell" around $245. The 12-month average stock price forecast is $352.06, indicating a potential upside of 11.2% compared to the current price.

Technical Analysis:

Following the good results, the resistance level that may be tested during the current session is $320.43, located at the 38.2% Fibonacci retracement. If this level is breached, there may be an attempt to close the bearish gap at $331.15. Support could be found at the 200 SMA at $314.3. The RSI is currently at 43.1; it's important to watch for any divergence from the downtrend on the RSI, which could suggest the end of the correction.