In a Falling Market, Can CAT Stock Claw Higher?


CAT stock (NYSE:CAT) has been struggling in the bear market, down (-17%) year to date. Despite weakening Chinese demand and a slowing property market, the Company remains optimistic about the year’s second half and the growth of CAT stock (NYSE:CAT) 

As the world’s biggest construction equipment maker, the Company is often cited as a significant economic indicator, as increased construction expenditure indicates growth, while decreased spending indicates a weaker economy. Rising interest rates can restrict construction activity, particularly in the homebuilding sector, which CAT stock  (NYSE:CAT)  and rivals such as Deere & Company (NYSE:DE) and Terex Corporation (NYSE:TEX) rely on to sustain growth.

Market Analysis of  CAT Stock

CAT stock  (NYSE:CAT) has had it good recently. Caterpillar issued its fiscal second-quarter 2022 results for the period ending June 2022 on August 2, 2022. The Company posted earnings-per-share (EPS) profits of $3.18, above consensus expectations of $3.02 by $0.16. Revenues increased 10.5% year on year (YoY) to $14.25 billion, falling short of expert expectations of $14.39 billion. Cat Financial increased its sales by 3% to $668 million. The revenue rise was attributable to a positive effect of $20 million from increased financing rates and a favorable impact of $18 million from returned and repossessed equipment, offset by a negative impact of $15 million from lower average earning assets. To $3.1 billion, new retail business volume declined by (-12%) or $429 million.

The Issue is With the Supply Chain, Not With the Demand.

“As we finish up the first half of 2022, I want to applaud our worldwide team for achieving another outstanding quarter with double-digit top line and adjusted earnings per share growth despite persistent supply chain issues,” said Caterpillar CEO Jim Umpleby. Our second-quarter results show solid demand in the majority of our end markets.” Top-line analyst forecasts were missed due to supply chain limitations. Engine control modules, for example, are one of the most crucial components impacted by semiconductor scarcity. CEO Impleby emphasized that demand for its goods and services remained robust across end markets, with particularly strong growth in services. He is optimistic that service revenues will be more than $28 billion by 2026. Manufacturing costs increased more, although this was compensated by price realization. Dealer inventory is still at a low level. In the third quarter, the backlog increased by over $2 billion. Sales in North America increased by 18%, while sales in Latin America increased by 27%. Due to currency effects, EAME had a (-3%) reduction in sales. User sales dropped (-3%), while machine sales fell (-4%). These were caused by component shortages in the supply chain. Due to supply chain constraints and difficulties in China, sales to users in the Construction Industries dropped (-4%). Operating profit margins declined to 13.6% from 13.9% the previous year.

Industry Expectations

Caterpillar anticipates that nonresidential construction will remain strong owing to construction backlogs. Projects are projected to accelerate as a result of the United States Infrastructure and Jobs Act. 

Featured Image-  Megapixl @ Flavijus

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About the author: Okoro Chinedu is a freelance writer specializing in health and finance, with a keen interest in cryptocurrency and blockchain technology. He has worked in content creation and digital journalism. Since 2019, he has written on various online platforms, and his work has been recognized by several important media sources and specialists in finance and crypto. In addition to writing, Chinedu enjoys reading, playing football, posing as a medical student, and traveling.