Dive Brief:
- Caterpillar’s revenue dropped 4% year over year due to a decline in construction demand across several key regions including North America and Europe, according to the heavy machinery maker’s third quarter earnings report released Oct 30.
- Within its Construction Industries segment, which includes sales of heavy equipment for construction projects, sales volume dropped 7% year over year, driven by dealers purchasing less equipment and tough comparisons against last year’s elevated third quarter, said Jim Umpleby, CEO of Caterpillar during an Oct. 30 earnings call with analysts.
- “Sales and revenues were down 4% in the third quarter versus last year, below our expectations due to the impact of lower-than-expected sales to users in Construction Industries,” said Umpleby, according to a transcript of the earnings call. The Irving, Texas-based company’s financial health is seen as a bellwether for many segments of the economy, including construction, mining and energy.
Dive Insight:
Caterpillar’s price realization, or the ability to sell products at prices it sets, is expected to trend lower in the fourth quarter, said CFO Andrew Bonfield during the call.
“Since early 2022, price realization has been strong and has often exceeded our expectations. Over the past several quarters, we have highlighted that price will begin to moderate in the second half of this year,” said Bonfield. “In the third quarter, this moderation began to occur as price realization was lower than previous quarters.”
In North America, revenue declined by about 11%, with weaker demand also felt in Europe, Africa and the Middle East, where revenue dropped about 15%, according to the earnings call. Its Asia Pacific region also saw a similar dip, falling 12%. The Latin America segment was the lone bright spot, increasing 12%.
Despite expectations for lower sales in its Construction Industries segment to persist into the fourth quarter, Umpleby remained optimistic about longer-term demand outlook due to funding from the Infrastructure Investment and Jobs Act.
Umpleby said about 27% of the $348 billion in total IIJA funding has been spent as of August 2024, with about 47% already committed, according to the American Road and Transportation Builders Association. This unspent funding should help prop up infrastructure-related demand over the coming quarters, according to Caterpillar.
“From a positive perspective, we expect government-related infrastructure to remain healthy,” said Umpleby. “There’s a lot of infrastructure activity out there that our dealers are working with their customers to help support. So, we feel good about that as well.”