Heavy machinery maker Caterpillar's profits soar on US infrastructure spending surge

(UI) — With a 31% increase in earnings in Q1, heavy equipment manufacturer Caterpillar Inc. exceeded Wall Street estimates on Thursday. However, a flat order backlog prompted analysts to believe that demand may have peaked, and the shares fell as a result.

An increase in infrastructure spending in the United States helped to enhance profits in the first quarter by keeping order books full and allowing the firm to raise pricing to offset the impact of rising expenses.

Excavators, bulldozers, and trucks from the machinery manufacturer are in more demand as a result of infrastructure legislation from the Biden administration that has spurred spending in the construction industry.

Reuters reported that after the business reported an increase in dealer inventory, the shares dropped as much as 4.7% in early trade. According to experts, a stable order backlog compared to recent quarters might be a sign that equipment purchases are slowing down.

"At a high level these are really strong results -- the initial stock reaction reflects some degree of 'is this the best and have we peaked out," Kristen Owen, executive director at Oppenheimer & Co. Inc., told Reuters.

In an effort to reassure investors, company management stated that dealer stocks are within the average three- to four-month range and that they continue to be positive about sales in the upcoming quarters.

"I think this is a little bit misunderstood by the market, we are not in a situation where we are expecting, or allowing dealer inventories to become a headwind," CFO Andrew Bonfield told Reuters.

Sales overall in Caterpillar's construction segment increased 10%. As drilling activity increased in response to increasing oil and gas prices, its energy clients also placed additional orders for components and engines.

Profit at the Texas-based company's resources and mining sector increased by 112%, and sales at its energy and transportation division increased by 24% year over year.

The company's adjusted earnings of $4.91 per share topped the $3.78 per share average estimate from Refinitiv analysts.

In comparison to the same period last year, Caterpillar's sales increased by 17% to $15.9 billion from $13.6 billion.

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