Caterpillar Sales Up 17%, Margin Hits 20.4%: Rapid Earnings Reaction
Key Points
Caterpillar’s Q3 sales rose 17% to $20.7 billion as data center power demand lifted operating margin to 20.4%.
Power generation sales climbed 30% to $3.4 billion, but the stock still fell about 8% after the company's quarterly report.
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Caterpillar (NYSE:CAT) reported third-quarter sales of $20.7 billion, up 17%, and GAAP profit per share of $7.13, up from $4.88. Shares fell about 8% in regular trading Thursday. Volume and price both rose, led by power equipment for data centers, so the core business ran well. Two caveats: a $128 million tariff recovery sits inside operating profit, and the release gives no full-year outlook.
Key Numbers
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- Sales and revenues: $20.7 billion, up from $17.6 billion a year earlier
- Operating profit margin: 20.4%, versus 17.3%
- Power generation sales: $3.4 billion, up 30%
- Operating cash flow, first nine months: $10.6 billion, versus $8.1 billion
What It Means
Operating profit grew more than twice as fast as sales. Price added almost straight to profit, and selling and administrative costs were slightly lower while volume rose, so fixed costs were spread over more sales. Manufacturing costs, including freight and tariffs, took back part of the gain in Construction and Resource Industries.
The margin gain is partly not repeatable. The $128 million of tariff recoveries is in both GAAP and adjusted results, since the company adjusts only for restructuring. Tariff recoveries are not profit to count on next quarter.
Resource Industries is the soft spot. Its margin slipped slightly even as sales grew, and the release says sales to mining, heavy construction and quarry customers rose mainly because of dealer inventory changes. That means machines sold to dealers, not necessarily to end users.
What to Watch Next
Watch whether Caterpillar puts numbers on its full-year outlook, which this release does not. Also check whether Resource Industries sales begin tracking end-user demand.
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Alexi Ueltzen has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Caterpillar. The Motley Fool has a disclosure policy.
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