Caterpillar Earnings Beat Expectations. Why Its Stock Is Dropping.

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Caterpillar

inventory is slipping after the equipment producer reported sturdy gross sales and earnings Friday morning. Sadly, inflation is rearing its ugly head.

Caterpillar (CAT) reported a revenue of $2.60, beating estimates for $2.41, on gross sales of $12.9 billion, forward of forecasts for $12.5 billion.

“Our devoted international staff stays centered on serving our clients, executing our technique and investing for future worthwhile development,” Caterpillar CEO Jim Umpleby stated in an announcement. “We’re inspired by greater gross sales and revenues throughout all areas and in our three main segments, which replicate continued enchancment in our finish markets.”

Caterpillar inventory was off 2% at $208.30 at 7:12 a.m. in premarket buying and selling. It was a superb quarter, however rising prices appear to be hitting the inventory.

Caterpillar administration stated within the information launch that revenue margins within the third quarter would “reasonable” from the second quarter. What’s extra, working revenue margins within the firm’s development an mining divisions slipped from the primary quarter into the second quarter, going from 17.8% to 16.8%. Greater materials prices, in addition to greater R&D prices, damage outcomes.

Rising commodity costs have been a problem for all producers. Metal costs, for example, averaged greater than $1,500 a ton within the second quarter, up from about $1,200 a ton within the first quarter of 2021 and up from about $500 a ton within the second quarter of 2020. Up to now within the third quarter, metal costs are averaging about $1,800 a ton. The issue of rising prices isn’t going away.

At the least demand isn’t an issue. Gross sales into the development and mining industries rose greater than 40% yr over yr. Gross sales in each divisions grew sequentially in contrast with the primary quarter, to $8.2 billion $7.8 billion.

Caterpillar inventory had dropped 8.5% throughout the previous three months and was up 17% to date this yr. The

S&P 500

has gained 5.8% over the last three months and 18% in 2020, whereas the

Dow Jones Industrial Common

has risen 3.7% throughout the previous three months and 15% this yr.

Shares are down about 14% from their June 52-week excessive of just about $247.

Caterpillar administration hosts a convention name at 8:30 a.m. Traders and analysts can be within the outlook for uncooked materials inflation.

Write to Ben Levisohn at allen.root@dowjones.com