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Caterpillar Slides Down As Margin Pressures Cloud Solid Q4 Earnings Beat

On ongoing rebound in construction equipment demand helped power Caterpillar to stronger-than-expected fourth quarter earnings Friday.

Updated at 10:54 am EST

Caterpillar  (CAT) - Get Caterpillar Inc. Report posted stronger-than-expected fourth quarter earnings Friday as an ongoing rebound in construction equipment sales and surging commodity prices powered the industrial giant's top and bottom lines.

Shares in the group slumped lower, however, as investors worried that slowing global growth, alongside rising input and commodity prices, would pinch the group's profit margins heading into the first half of the year.

Caterpillar said adjusted profits for the three months ending in December were pegged at $2.69 per share, up 27% from the same period last year and well ahead of the Street consensus forecast of $2.26 per share. Group revenues, Caterpillar said, rose 23% to $13.8 billion, a figure that also topped analysts' estimates of a $13.15 billion tally.

The group's operating profit margin was 111.7% for the quarter, down from 13.4% in the previous three month period. Caterpillar also noted it ended the quarter with $9.3 billion in cash, compared to $19.4 billon after the three months ending in September, after returning more that $5 billion to shareholders through buybacks and dividends across the whole of 2021.

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Looking into the coming year, Caterpillar said is sees stronger first quarter sales, with price increases offsetting input costs, with profit margins improving over the back half of 2022.

"I'm proud of our global team's continued resilience in what proved to be a challenging and dynamic operating environment. We delivered adjusted operating profit margins and ME&T free cash flows consistent with our long-term targets established during our 2019 Investor Day," said CEO Jim Umpleby. "Amid ongoing supply chain constraints, our team continues to execute our strategy for long-term profitable growth while striving to meet customer demand."  

Caterpillar shares were marked 5.45% lower in early trading following the earnings release to change hands at $200.60 each, a move that would erase all of the stock's gains over the past six months. 

"Looking ahead, Caterpillar expects stronger year-over-year sales in 1Q22. Meanwhile, operating margins are projected to face headwinds in the current quarter but improve throughout 2022 from volume growth and pricing actions offsetting higher input costs," said BMO Capital Markets analyst John Joyner, who carries a 'market perform' rating with a $230 price target on Caterpillar stock. "Nonetheless, we believe the “low-quality” beat versus expectations will weigh on the shares today."  

Construction sales were up  27.2% to $5.736 billion, Caterpillar said, "driven by the impact from changes in dealer inventories and higher end-user demand, along with favorable price realization."  

Resource, energy and transportation sales were up 27% to $2.76billion thanks to "higher end-user demand for equipment and aftermarket parts, and favorable price realization. End-user demand was higher in mining as well as heavy construction and quarry and aggregates.