Caterpillar sales increase in the first quarter, but also costs

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Caterpillar’s first-quarter sales rose on strong demand for construction equipment despite supply chain challenges that continue to plague companies ranging from car and phone makers to grocery stores.

And the Deerfield, Illinois manufacturer isn’t immune to galloping inflation which has driven up costs for both consumers and businesses around the world.

Costs and expenses jumped 13% from a year ago to $11.73 billion. The company said the rise in manufacturing spending primarily reflected higher material and transportation costs.

The company’s operating profit margin was 13.7% for the first quarter of 2022, compared to 15.3% for the first quarter of 2021.

The company also noted a slowdown in sales in China due to COVID-19 and a weakening in residential construction.

Shares of Caterpillar Inc. slid 5% on Thursday.

Overall sales rose 14% to $13.59 billion, beating the $13.5 billion sought by analysts polled by Zacks Investment Research. Higher prices also fueled revenue figures.

Construction industry sales rose 12%, driven by higher prices, dealer inventory changes and increased end-user demand for replacement parts.

Sales in the primary industries division jumped 30% due to higher sales volume and higher prices.

Sales volume was impacted by increased demand for equipment and spare parts and changes in dealer inventory.

Housing demand has caught fire during the pandemic as millions of people have moved or bought a first home, but rising mortgage rates could start to dampen that.

A skyrocketing prices sets the stage for a slowdown in home sales this year as rising borrowing costs reduce the purchasing power of potential buyers.

Also in China, Beijing has tightened debt controls to stabilize its construction sector, and some of these maneuvers may have played into Caterpillar’s performance there.

“In the first quarter of 2022, China was weaker than expected due to weak residential construction and COVID-19 related shutdowns,” CEO James Umpleby said. “Overall, sales in China were about half the level we saw in the prior year quarter.”

Caterpillar Inc. earned $1.54 billion, or $2.86 per share, for the three months ended March 31.

Excluding certain items, earnings were $2.88 per share. Wall Street expected $2.66 per share.

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