Caterpillar Earnings Impressed. Why Its Stock Is Dropping.

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Updated July 30, 2021 9:40 americium ET / Original July 30, 2021 6:41 americium ET

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Caterpillar earth-moving equipment

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Caterpillar banal is slipping aft the machinery shaper reported robust income and net Friday morning. Unfortunately, ostentation is rearing its disfigured head.

Caterpillar (CAT) reported a nett of $2.60, beating estimates for $2.41, connected income of $12.9 billion, up of forecasts for $12.5 billion.

“Our dedicated planetary squad remains focused connected serving our customers, executing our strategy and investing for aboriginal profitable growth,” Caterpillar CEO Jim Umpleby said successful a statement. “We’re encouraged by higher income and revenues crossed each regions and successful our 3 superior segments, which bespeak continued betterment successful our extremity markets.”

Caterpillar banal was disconnected 3.1% astatine $206.02 astatine 9:36 a.m. successful premarket trading. It was a good quarter, but rising costs look to beryllium hitting the stock.

Caterpillar absorption said successful the quality merchandise that nett margins successful the 3rd 4th would “moderate” from the 2nd quarter. What’s more, operating nett margins successful the company’s operation and mining divisions slipped from the archetypal 4th into the 2nd quarter, going from 17.8% to 16.8%. Higher worldly costs, arsenic good arsenic higher R&D costs, wounded results.

Rising commodity prices person been an contented for each manufacturers. Steel prices, for instance, averaged much than $1,500 a ton successful the 2nd quarter, up from astir $1,200 a ton successful the archetypal 4th of 2021 and up from astir $500 a ton successful the 2nd 4th of 2020. So acold successful the 3rd quarter, alloy prices are averaging astir $1,800 a ton. The occupation of rising costs isn’t going away.

At slightest request isn’t a problem. Sales into the operation and mining industries roseate much than 40% twelvemonth implicit year. Sales successful some divisions grew sequentially compared with the archetypal quarter, to $8.2 cardinal $7.8 billion.

Caterpillar banal had dropped 8.5% during the past 3 months and was up 17% truthful acold this year. The S&P 500 has gained 5.8% during the past 3 months and 18% successful 2020, portion the Dow Jones Industrial Average has risen 3.7% during the past 3 months and 15% this year.

Shares are down astir 14% from their June 52-week precocious of astir $247.

Caterpillar absorption hosts a conference telephone astatine 8:30 a.m. Investors and analysts volition beryllium funny successful the outlook for earthy worldly inflation.

Write to Al Root astatine allen.root@dowjones.com

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