Al Root

Caterpillar reported weaker-than-expected first-quarter earnings, and lowered guidance.

That isn't great, but shares were stable in early trading. Investors were braced for bad news.

Wednesday morning, the heavy-duty equipment maker announced first-quarter adjusted earnings per share of $4.25 on sales of $14.2 billion. Wall Street was looking for earnings per share of $4.35 on sales of $14.7 billion, according to FactSet. A year ago, Caterpillar reported earnings per share of $5.60 on sales of $$15.8 billion. Sales and earnings are falling as the construction and mining economies slow down.

The numbers looked light. What's more, the company is facing increased costs due to tariffs, which will lower operating-profit margins in 2025.

In January, Caterpillar management said 2025 sales should be slightly lower than 2024. That's still the expectation. Caterpillar generated 2024 revenue of almost $65 billion. Currently, Wall Street is projecting $62.5 billion for this year.

Caterpillar also guides to a range of operating margins based on total revenue. The range when sales are roughly $63 billion is 16% to 20%. Profit margins in 2025 were expected to be at the upper end of the range. Now, Caterpillar says margins will be in the middle of the range. Wall Street currently models about 18.5%.

For the second quarter, Caterpillar projects increased costs of $250 million to $350 million.

Caterpillar shares were up 1.8% in premarket trading at $312.80, while S&P 500 futures were down 0.3%, and Dow Jones Industrial Average were up 0.1%.

The starting point helps explain the reaction. Coming into Wednesday trading, shares had fallen 20% since the Nov. 5 presidential election. Tariff fears have weighed on analyst and investor sentiment for a while.

The machinery group, including Caterpillar, "could underperform the S&Pv500 by greater than 20% in a more-adverse macro[economic]/recession scenario," wrote Baird analyst Mig Dobre in a preview report. He adds that a recession isn't priced into the sector's stocks yet.

Dobre rates Caterpillar stock at Sell and has a $300 price target. Morgan Stanley analyst Angel Castillo rates shares at Hold, but his target is lower at $283.

"We expect a soft first-quarter 2025 with pricing and margins continuing to face greater than expected downward pressure," wrote Castillo in a preview report.

He was right, but it looks as if investors were braced for bad news.

Exactly how the stock will trade on Wednesday is difficult to predict. Options markets imply that Caterpillar shares will move about 5%, up or down, following earnings. Shares moved an average of 4% over the past four quarterly reports. They rose one time and fell 3 times in that span.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

April 30, 2025 07:58 ET (11:58 GMT)

Copyright (c) 2025 Dow Jones & Company, Inc.