Al Root

Caterpillar investors are worried about a trade war and the economy. They will be hoping for positive comments when the heavy-duty machinery maker reports earnings Wednesday morning.

For the first quarter, Wall Street is looking for earnings per share of $4.35 from sales of $14.7 billion, according to FactSet. A year ago, Cat reported per-share earnings of $5.60 from sales of $$15.8 billion. Sales and earnings are falling as the construction and mining economies slow down.

The machinery group, including Cat, "could underperform the S&P500 by greater than 20% in a more adverse macro[economic]/recession scenario," wrote Baird analyst Mig Dobre in a preview report. He says a recession isn't priced into the sector's stocks yet. Investors, apparently, are still hoping to avoid the dreaded "R" word.

Dobre rates shares Sell and has a $300 price target for the stock. Morgan Stanley analyst Angel Castillo rates shares 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.

It sounds as if Wall Street is braced for bad news. Investors look wary as well. Coming into Wednesday trading, Cat stock was down 20% since the Nov. 5 election, while the S&P 500 and Dow Jones Industrial Average were off about 4%.

Tariffs and cost inflation matter for Caterpillar, but as a net exporter out of the U.S., the bigger risk might be retaliatory levies by other countries.

Trade wars and the economic outlook should get wrapped up in Caterpillar's guidance. In January, Cat management said 2025 sales should be slightly lower than 2024. Cat generated 2024 revenue of almost $65 billion. Currently, Wall Street is projecting $62.5 billion for this year.

Cat 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 are expected to be closer to 20% than 16%: Wall Street currently models about 18.5%.

Exactly what the company will say 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

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April 29, 2025 17:21 ET (21:21 GMT)

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