Caterpillar
What's interesting about this specific result is that the company delivered stronger than expected performance and showed little impact from the supply chain issues and chip shortages that have plagued other manufacturers yet the stock dropped. It's not surprising if you have been paying attention to the action underneath the volatility of the indices. Essentially, cyclicals are starting to trend lower as investors sour on growth expectations for the coming year.
Inside the Numbers
Clearly, investors believe decelerating growth is more impactful on Caterpillar's stock than its results from last quarter which showed the company's earnings per share (EPS) growing by 27% to $2.69 per share which was significantly above expectations of $2.26 per share. This also marked the company's seventh consecutive earnings beat.
Revenue increased by 23% to $13.9 billion which also beat expectations of $13.2 billion. The company did note that rising raw materials, labor, and supply chains costs are compressing operating margins to 11.6%, down from 12.5% last year. In total, the cost of sales outpaced sales growth with a 28.5% increase to $10 billion, while analysts were looking for $9.21 billion.
Another negative from the earnings report was the company's warning that Chinese demand was likely to slow in 2022 as the company noticed a sharp slowdown in end-user demand in Q4. In part, this is due to the real estate bubble in the country, where there has been overbuilding and over-speculation with the Evergrande bankruptcy and fallout being the prime example.
In terms of looking at its performance by various units: Construction Industries grew 27% to $5.74 billion, Energy & Transportation was up 19% to $5.73 billion and Resource Industries increased 27% to $2.76 billion.
Overall, Caterpillar's stock price has to be considered attractive to longer-term investors. Currently, the stock has a forward P/E of 16.3 which is below the S&P 500's
