Why Caterpillar Stock Is Volatile Today

Caterpillar (NYSE: CAT) reported weaker-than-expected first-quarter results and lowered full-year guidance. But investors went into earnings season anticipating bad news from Cat, limiting the downside post-announcement.

Shares of Caterpillar actually opened up about 3% following the release before falling down 2% as of 2:30 p.m. ET.

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Pressures on supply and demand

Caterpillar is a world leader in heavy duty construction and mining equipment. The company is vulnerable to tariffs in several ways. Cat has a global supply chain and is likely to see costs go up. It also has to worry about tariffs causing an economic slowdown that eats into demand for its big ticket items.

The company earned $4.25 per share in the quarter on revenue of $14.25 billion, falling short of Wall Street's $4.35 per share in earnings on sales of $14.6 billion consensus estimate. Sales were down 10% year over year, and Caterpillar also warned that margins could be on the lower end of its previous 16% to 20% range for 2025 due to higher costs.

Caterpillar said the sales decline was due to weaker dealer restocking trends and pricing pressures. Sales of construction equipment led the decline, down 19% from a year ago.

Is Caterpillar stock a buy?

Caterpillar has historically been a cyclical company, and investors looking at the economic tea leaves likely saw this weakness coming. Shares of Caterpillar were down 15% for the year heading into earnings season.

The good news for investors is Caterpillar's scale and strong balance sheet give the company plenty of cushion to weather the storm. The company generated $1.3 billion in operating cash flow in the quarter and paid out $4.3 billion in share repurchases and dividends, providing some reason for investors to be patient.

The bad news is, with economic uncertainty still building, it is hard to see Caterpillar's business, and its stock, recovering any time soon. Investors buying in now are going to have to be patient.

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Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.