By Shivansh Tiwary
(Reuters) -Caterpillar Inc said on Tuesday that strong demand for heavy machinery from construction and mining industries is expected to drive full-year operating margin near the top end of its prior forecast, sending its shares to a record high.
The company, seen as a proxy for global economic activity, also reported better-than-expected second-quarter results, as sales rose across all of its main businesses.
“We now expect adjusted operating profit margins to be close to the top of the targeted range relative to the corresponding expected level of sales,” Caterpillar CEO Jim Umpleby said during an investor call.
The company had forecast an adjusted operating profit margin between 10-13% and 18-21% when it reported fourth-quarter results.
Demand for heavy equipment has been improving as the United States upgrades roads, railways and other transportation infrastructure under Biden Administration’s $1 trillion package that was approved by the Senate in 2021. Rising spending on mining-related activities has also lifted sales.
In response, the company raised prices for its yellow machines, helping offset manufacturing costs, while protecting profit.
However, some investors were worried about slowing demand as dealer inventories rose in the first two quarters, although CFO Andrew Bonfield allayed those concerns by saying the company was “very comfortable” with the inventory that dealers were holding.
“Stock reaction should be positive as all metrics point to acceleration in underlying demand trends,” JPMorgan analyst Tami Zakaria wrote in a note.
Shares of the company were up 6.8% in morning trading, hitting a record high of $283.96, after Caterpillar added it was expecting higher sales and operating profit margin in the second half of the year, compared with a year earlier.
The manufacturer reported a $600 million increase in dealer inventory in the second quarter from a year earlier, primarily in its energy and transportation business.
Meanwhile, Caterpillar reported an adjusted profit of $5.55 per share in the second quarter, beating analysts’ expectations of $4.58 per share.
Sales rose 21.6% to $17.32 billion, above Wall Street estimates of $16.49 billion.
(Reporting by Bianca Flowers and Shivansh Tiwary; Editing by Anil D’Silva and Saumyadeb Chakrabarty)
