Caterpillar (CAT, Financial) is trading higher after reporting Q2 results this morning. The company posted its sixth consecutive EPS beat, exceeding expectations by $0.40 or more. Revenue declined 3.6% year-over-year to $16.69 billion, slightly below analyst expectations, continuing a pattern seen in Q1.
- Revenue decline was primarily due to lower sales volume, partially offset by favorable price realization. Dealer inventory also decreased more during Q2 2024 than Q2 2023, impacting sales.
- Construction Industries sales fell 7% year-over-year to $6.68 billion, mainly due to lower sales volume influenced by dealer inventory changes. Government-related infrastructure projects remained healthy. Sales in North America were flat, while Latin America saw an increase.
- CAT is lapping a record level of CI sales in 2023. Sales to users in 2H are expected to decline slightly year-over-year. For North America, CAT anticipates slightly lower construction industry sales to users for FY24, primarily due to a weaker-than-expected rental fleet. Demand in China and Europe is expected to remain low, with soft economic conditions in Asia Pacific outside of China.
- Resource Industries saw the biggest decline, with sales down 10% year-over-year to $3.21 billion, primarily due to lower sales volume, partially offset by favorable price realization.
- Energy & Transportation was the only growing segment, with sales rising 2% year-over-year to $7.34 billion. Sales increased across all applications except Industrial. Power Generation was a notable bright spot, with sales jumping 15% to $1.89 billion, driven by large reciprocating engines for data center applications. Turbines and turbine-related services also saw an increase.
- Despite the revenue decline, CAT increased its adjusted operating margin to 22.4% from 21.3% a year ago, mainly due to favorable manufacturing costs and product mix. The E&T segment drove better-than-expected pricing.
Overall, investors are pleased with CAT's Q2 report. While revenue declined year-over-year and is expected to continue declining in 2H, CAT is lapping a strong 2023 when sales jumped 14%. It's impressive that CAT has expanded margins despite lower sales. Additionally, the Power Generation segment is benefiting from the AI data center infrastructure buildout, a nice business for CAT.
