CAT Plunges After Order Backlog Unexpectedly Shrinks For First Time Since 2020

Shares of Caterpillar are tumbling more than 5% in premarket as investors fear the industrial bellwether’s latest report indicates machinery demand peaked. That, as Bloomberg’s Joe Deaux writes, “bodes ill for the economic outlook, already facing headwinds from the Fed’s aggressive tightening.”

A quick look at Q3 earnings, which actually were stronger than expected after Caterpillar posted better-than-expected revenue in its construction equipment business, while sales from mining as well as its energy and transportation businesses were weaker than analysts’ anticipated.

• Revenue $16.8BN, beating exp. of $16.59BN
• Adjusted EPS $5.52, beating exp. of $4.77

Analysts warned that sales in Caterpillar’s biggest business markets — construction and mining — would be a drag on third-quarter earnings, though they also suggested the weakness should be offset by stronger growth in energy and transportation. Helping damp the slowdown has been healthy end-market demand for Caterpillar and other machinery makers.

And while revenue and profit in the third quarter were better than expected…

… the industrial bellwether said in its earnings presentation slides that its order backlog plunged $2.6 billion from the prior quarter.

Not only did the backlog drop Q/Q, but it also slumped by $1.9 billion YoY, which is the first decline the company has reported since 2020 as it battled through global pandemic shutdowns. The collapsing backlog for the company – which is viewed as an economic bellwether because its machines dot construction, mining and energy sites around the world – is an ugly sign for future demand.

CAT shares tumbled 5% in premarket trading, underperforming the S&P by double digits and sending the company back in the red for the year.

CAT’s earnings presentation is below (pdf link)