Eyes on inventories as Caterpillar announces Q1 results

Two Caterpillar 330 Straight Boom excavators work a demolition site. (Image: Caterpillar)

“The decrease was primarily due to lower sales volume of $464 million, partially offset by favourable price realisation of $199 million,” said Caterpillar. “The decrease in sales volume was mainly driven by lower sales of equipment to end users.”

North America was the only region the OEM realised gains over the last year in the construction industries segment, with sales increasing by 6% from the first quarter of 2023 to $3.8 billion.

The year prior, Caterpillar saw a 33% increase in North American sales comparing the first quarter of 2022 to 2023.

Sales in Latin America stayed relatively flat compared to 2023, with a 1% decrease to $595 million in 2024’s first quarter.

EAME (Europe, Middle East, and Africa), which saw a 5% increase this time last year, decreased by 25% this year to drop below $1 billion at $996 million.

Sales dropped again in Asia Pacific. Last year, construction industries’ sales and revenue dipped by 21% to $1.1 billion, and the trend continued in 2024 as Caterpillar reported another 14% drop to $993 million.

“Sales decreased in Asia/Pacific primarily due to lower sales volume,” acknowledged the company. “Lower sales volume was mainly driven by the impact from changes in dealer inventories. Dealer inventory increased more during the first quarter of 2023 than during the first quarter of 2024.”

The construction industries segment profit was $1.76 billion in the first quarter of 2024, a decrease of $26 million, or 26%. The company reported a 69% increase in profit in construction industries comparing 2022’s first quarter to 2023’s.

“I’m pleased with our team’s performance that resulted in higher adjusted operating profit margin, record adjusted profit per share and strong ME&T free cash flow,” said chairman and CEO Jim Umpleby. “Our strong balance sheet and ME&T free cash flow allowed us to deploy a record $5.1 billion of cash for share repurchases and dividends in the first quarter. We continue to execute our strategy for long-term profitable growth.”

Caterpillar’s resource industries’ total sales (which includes mining equipment) was $3.19 billion in the first quarter of 2024, a decrease of $234 million, or 7%, compared with $3.42 billion in the first quarter of 2023.

The May-June issue of International Construction will include the Yellow Table, a ranking of the world’s biggest construction OEMs by sales. Previous editions of the Yellow Table can be viewed online.

Lower sales volume was anticipated due to high dealer inventory

The industry has been expecting a pullback on machine sales the last few years, and Caterpillar’s first quarter reporting suggests the high volume of sales is starting to deflate.

2023 surprised many as most regions, particularly North America, saw record sales by some OEMs.

While initial numbers for 2024 are showing that sales are finally slowing, Caterpillar noted price realisation remained positive.

“Sales and revenues for the first quarter of 2024 were $15.8 billion, about flat to the first quarter of 2023, due to lower sales volume, which was mostly offset by favourable price realization,” said the OEM.

Inventories, measured in dollars, were still high for the company: it reported $16.57 billion last year, which is up to $16.93 billion in 2024.

“The thing that people are most nervous about is if a lot of inventory gets built, and that isn’t going to customers and it sits on dealer lots, then there’s a temptation for dealers to cut the price to try to move it off the lot,” Stephen Volkmann, analyst at Jefferies, told Reuters.

“It also means that, at some point, Caterpillar would have to really cut back on production in order to lower those inventory levels, and that’s the risk that people are worried about,” he added.