Caterpillar Q1 Earnings Report Falls Short of Estimates
Caterpillar (NYSE: CAT) has announced its Q1 results, revealing that both revenue and earnings fell below analysts’ expectations. The company reported revenue of $14.2 billion and adjusted earnings of $4.25 per share, compared to consensus estimates of $14.6 billion and $4.35, respectively. A reduction in dealer inventory levels negatively impacted Caterpillar’s topline performance. Nevertheless, the company maintains a favorable outlook, which could benefit its stock.
Since the beginning of the year (as of April 29), CAT stock has declined by 15%, lagging behind the S&P 500 index, which is down 5%. For investors seeking smoother returns compared to individual stocks, the High Quality Portfolio is worth considering, as it has outperformed the S&P with over 91% returns since its inception.
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Caterpillar’s Q1 Performance Overview
Caterpillar’s first-quarter results showed a 10% year-over-year revenue decline, reaching $14.2 billion. Analyzing its segments, Construction Industries faced the largest drop at 19%, while Resource Industries decreased by 10%. Energy & Transportation experienced a more modest decline of 2% compared to the previous year. This downturn, along with a 390 basis point contraction in adjusted operating margin to 18.3%, led to earnings per share of $4.25, down from $5.60 in the same quarter a year ago.
A significant factor behind this sales drop was a notable reduction in dealer inventory levels, which changed by only $100 million compared to $1.4 billion in the prior-year quarter. This change signals weak overall demand. Elevated interest rates and persistent inflation have likely contributed to this subdued demand, alongside lower price realizations impacting sales. As a result, Caterpillar may struggle to increase prices going forward.
Looking forward, Caterpillar estimates that its second-quarter sales will be similar to the previous year’s figures. However, the company anticipates an additional cost burden of $250 million to $350 million in Q2 due to tariffs. For the year overall, barring further tariff impacts, Caterpillar suggests sales will be roughly unchanged compared to 2024, a more optimistic view than that offered in January, which called for a slight decline. Should tariffs stay at their current levels, the company continues to predict sales will align with January guidance.
Implications for CAT Stock
Following the disappointing Q1 results, Caterpillar’s stock rose by 3% after the earnings report, buoyed by a positive outlook. It is also relevant to note that CAT has demonstrated steady growth, with increases each year for the last four years. Specifically, the stock posted returns of 16% in 2021, 19% in 2022, 26% in 2023, and 25% in 2024. However, this consistent value growth has not always led to outperformance against the broader market.
In contrast, the Trefis High Quality (HQ) Portfolio, comprised of 30 stocks, displays less volatility and has outperformed the S&P 500 over the past four years. This outperformance stems from the HQ Portfolio’s emphasis on better returns with reduced risk in comparison to the benchmark index.
Given the current uncertain macroeconomic landscape, particularly concerning tariffs and trade relations, there remain questions about whether CAT will experience another period of underperformance relative to the S&P 500 similar to that in 2021, or whether the stock could see significant appreciation ahead.
While we update our valuation model for CAT to reflect the latest results, our preliminary analysis indicates growth potential for the stock. Currently trading near $315, CAT’s stock has a price-to-earnings (P/E) ratio of 15x, based on trailing earnings of $20.55 per share. This valuation is lower than its average P/E of 19x over the last five years. Although a slight contraction in the P/E multiple seems reasonable based on recent declines in sales and earnings, we believe that at 15x, CAT stock still has room for growth.
Considering CAT stock‘s growth prospects, it remains essential to analyze how Caterpillar’s peers perform on notable metrics. Further comparative insights into various companies can be sourced through Peer Comparisons.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
