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Fourth Quarter Sales Of Caterpillar Soars But Firm Warns Of Margin Pressure

Fourth Quarter Sales Of Caterpillar Soars But Firm Warns Of Margin Pressure
Caterpillar Inc reported quarterly results that comfortably beat Wall Street projections for fourth-quarter revenue by more than 20 per cent.
However, the heavy-equipment maker issued a warning that rising manufacturing and labor costs could hurt the company’s operating margins during the current quarter.
In New York Stock Exchange trade, shares of the world's largest construction and mining equipment manufacturer plummeted 6 per cent on the warning.
Factory closures, blocked ports, and labor shortages precipitated by the epidemic have wreaked havoc on businesses across the board in the last year, driving up manufacturing prices and halting production lines.
“Supply chain has been a wild card for all of us in 2021,” Chief Financial Officer Andrew Bonfield told Reuters in an interview.
After raising its prices twice last year, Caterpillar said it plans to boost pricing once again this year so that it can to help offset some of the rising costs for manufacturing.
Public spending, such as that of the United States, is a good example. On a conference call with investors, Bonfield said that President Joe Biden's $1 trillion infrastructure bill is giving Caterpillar's customers the confidence to buy new equipment.
Caterpillar's bottom line has been aided by higher demand and continuous cost-cutting measures, but supply chain limitations are dragging on operating profits.
"The broad-based strength in demand was overshadowed by higher-than-expected manufacturing costs due to production inefficiencies," said Rene Lipsch, Senior Credit Officer for Moody's Corp.
The business expects headwinds to its adjusted operating profit margin in the first quarter compared to a year ago, but that this would recover during the year.
Chairman of the Federal Reserve, Jerome Powell, has hinted that a hike in short-term interest rates is on the way, possibly as soon as March. The Fed expects firmer monetary policy and strong job growth to help moderate inflation, although some experts predict it will do little to alleviate supply-chain bottlenecks, given that rates have been near zero since the start of the pandemic.
"Given the overall demand outlook that's strong, I don't think a rise in interest rates will have an impact on the supply chain in the near term," said Chad Dillard, senior analyst at Bernstein.
In the fourth quarter, total sales increased by 23 per cent to $13.80 billion, thanks to record public spending in most of the company's markets.
According to Refinitiv data, analysts predicted revenue of $13.15 billion on average.
In the quarter ended Dec. 31, the corporation made a profit of $2.12 billion, up from $780 million a year earlier. According to Refinitiv I/B/E/S, Caterpillar earned $2.69 per share on an adjusted basis, beating analysts' expectations of $2.26 per share.

Christopher J. Mitchell

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