Caterpillar’s Resilience Amid Challenges: Profits Remain Strong
$Caterpillar(CAT)$ hit an all-time high in late September, fueled by three main catalysts.
The company is set to report earnings on October 30.
Solid Earnings Despite Declining Sales
Despite lower sales, Caterpillar’s Q2 earnings received positive feedback.
A slowdown in trading volume was expected after an April warning about declining sales, so the dip didn’t come as a surprise. Caterpillar, like the broader industry, faces a tough environment.
Yet, overall, earnings indicate that Caterpillar is holding its ground. This is a well-managed company with solid profitability metrics and strong margins.
Steady Revenue Signals Stability
Next week’s earnings report isn’t likely to disrupt this positive outlook. While the results may cause short-term fluctuations, larger economic factors could have a more significant impact by year-end. Caterpillar isn’t to blame for the sales slowdown.
In Q2, sales in Europe and the Middle East construction sectors dropped by 27%. EU manufacturing has been shrinking for several years. Based on PMI data, even Germany, once Europe’s industrial powerhouse, appears to be struggling.
The European Central Bank is finally taking this issue seriously, shifting its focus from inflation to growth, following the Fed’s lead in July. This means rate cuts are expected to continue, nearing neutral rates. They’ve already cut rates three times, and there’s speculation of a 50-basis-point cut in December.
Supportive Outlook for U.S. Manufacturing
U.S. manufacturing seems to be following the EU’s trend, with three PMI readings below 50 in the second half of the year. However, there’s a silver lining: the industry remains relatively stable, and the Fed is likely to reduce rates by 100 basis points by year-end, which could support economic activity.
In Q2, Caterpillar’s U.S. sales actually grew by 1%, with plenty of room for further improvement. Growth is projected to look even better in 2025, with a sales increase of 5.27% in 2026.
Election-Year Rally and Potential Opportunities
This election-year rally is notably stronger, pushing Caterpillar’s stock to record highs—unlike in 2016 or 2020. Past elections focused more on infrastructure and American industry, with 2020’s race even leading to the Infrastructure Investment and Jobs Act (IIJA). The focus of the 2024 race looks quite different.
While the election results might seem important for Caterpillar, it’s clear that the company could thrive regardless of which party wins. Earnings will be the main driver in the short term—although it’s tough to say in what direction. And while election results could add some volatility, Caterpillar has proven it can perform well under any administration.
Any price dip could be a buying opportunity.
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