Caterpillar reported first-quarter revenue of $15.8bn, broadly flat on last year. A drop in sale volumes was offset by higher selling prices. By division, Construction and Resource saw sales drop, while Energy & Transportation delivered growth.
Underlying operating profit rose 5% to $3.5bn, with margins rising from 21.1% to 22.2%. The core construction businesses generated free cash flow of $1.3bn, down from $1.4bn a year ago.
Second quarter sales are expected to be lower than last year, with underlying operating margin at a similar level. Full-year free cash flow is still expected in the top half of the recently upgraded $5-10bn range.
The shares fell 4.0% in pre-market trading.
Our view
After a knockout 2023 it’s not surprising to see growth slow. First quarter results pointed to a sales environment driven by higher prices, with a bit of volume weakness now creeping in. But we still see enough long-term drivers to make this an attractive name from here.
For nearly a century, the company's built mission-critical heavy machinery, which has led to its position as one of the world's most valuable brands. Three key pillars underpin the business model; Construction Industries, Resource Industries and Energy & Transportation.
We can find positives in all three. Infrastructure spend has tailwinds from government-related investment in the US. For mining equipment, commodity prices have come down, but remain high enough for continued investment. Longer term, we see increased demand for materials that help support the global energy transition. It's Caterpillar's product range that can support that. There are also innovative solutions brought to the table with autonomous mining vehicles which have so far shown to increase productivity by 30%.
In Energy & Transportation, demand for oil & gas related products could well be peaking. It's in the more environmentally friendly offerings that we see longer-term potential, innovations like green hydrogen generators can help end customers meet their climate-related objectives.
Running across all three segments is the services offering, where Caterpillar offers repairs and upgrades throughout its products' life cycles. This helps support revenue streams and is an offering that's gone from strength to strength.
Strong free cash flow guidance is welcome news and helps to ease the pressures that the heavy debt load brings. As a mature business, it can stomach a higher debt load, and levels relative to profits have been steady over time. That cash flow also supports shareholder returns, and the $5.1bn delivered over the first quarter through dividends and buybacks was a record high – though no returns are guaranteed.
Caterpillar offers indirect exposure to a range of end markets where we see several growth drivers. Looking further out we remain confident in the longer-term industry growth drivers, and like Caterpillar as a business leader. We do see some uncertainty in the near term as the level of demand finds a level to settle at.
Caterpillar key facts
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