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Caterpillar Inc. (CAT) reported its earnings for the fourth quarter of 2023, exceeding expectations with strong results. The stock is up 4% and breaking out to all-time highs. Shares of CAT are up 100 points (40%) since the start of November. Investors will closely watch this rally above $300 to see if it is sustainable.
The company reported adjusted earnings per share (EPS) of $5.23, beating analysts" Consensus estimate of $4.73 and marking a significant increase from $3.86 in the same period last year.
Revenues for the quarter were $17.07 billion, a 2.8% increase compared to the same period in 2022, narrowly missing estimates of $17.2 billion. This growth can be attributed to favorable price realization, higher Financial Products' segment revenues, and favorable currency impacts, primarily related to the euro. These positive factors were partially offset by lower sales volume due to changes in dealer inventories.
Machinery, Energy & Transportation segment revenue for the period stood at $16.24 billion, a 2.3% growth compared to the previous year's $16.53 billion, falling short of the estimated revenue. Caterpillar Inc. stated that North America machine retail sales in the fourth quarter of 2023 were up 11%. However, the company saw a decline in Latin America machine retail sales, down by 1%, and Asia/Pacific machine retail sales, down by 5%. The global machine retail sales for the fourth quarter of 2023 increased by 3%.
The company's financial segment revenue saw 15% year-on-year growth, reaching $833 million against the estimated $812.5 million.
Caterpillar Inc.'s operating profit for the fourth quarter of 2023 was $3.134 billion, an 87% increase compared to $1.680 billion in the fourth quarter of 2022. The growth in operating profit was mainly driven by favorable price realization and the absence of a goodwill impairment charge related to the Rail division in 2022. However, higher selling, general, and administrative (SG&A) and research and development (R&D) expenses partly offset these gains. The increase in SG&A/R&D expenses was primarily due to higher short-term incentive compensation expense and strategic investment.
The company achieved an operating profit margin of 18.4% in the fourth quarter of 2023, a significant improvement compared to 10.1% in the same period of the previous year. operating profit margin for the fourth quarter of 2023 stood at 18.9%, up from 17.0% in the fourth quarter of 2022.
Looking ahead, Caterpillar Inc.'s outlook appears positive despite the expected broader machinery down cycle in 2024. The company's demand remains healthy in most end markets, with non-residential construction being its largest segment, followed by mining, oil and gas, power generation, and residential construction.
The company has provided guidance that its revenue for 2024 will be in line with the previous year, with modestly positive price realization. Caterpillar Inc. has raised its margin target range by 100 basis points and expects to be in the top half of the new range in 2024. The free cash flow target range has also been raised, and the company anticipates being in the top half of that range for the year.
In summary, Caterpillar Inc. delivered strong results for the fourth quarter of 2023, surpassing earnings expectations and achieving a significant year-on-year increase in both EPS and revenue. The company's ability to improve operating profit margins and positive outlook in a potentially challenging market environment highlights its resilience and sound strategic positioning in various industries. Investors may find Caterpillar Inc. a compelling investment opportunity given its solid financial performance and optimistic prospects.