Caterpillar Reports Strong Q1 Results, Expansion in North America Drives Growth

Caterpillar, a leading manufacturer of construction and mining equipment, reported outstanding results for the first quarter of 2023, driven largely by expansion in North America. Listed below are seven key takeaways from the report and what they mean for the construction industry.

1. Improved Supply Chain Reduces Pressure on Equipment Availability

Caterpillar reported increased equipment availability due to improved supply chain circumstances. While there are still some challenges that could affect some of its larger machines, the supply chain improvements generally allowed Caterpillar to make stronger-than-expected shipments in its most limited market in terms of dealer inventory, North America.

2. Excavator Availability Improves as Demand Slows in China

Caterpillar highlighted that its excavators are now more readily available due to a slowdown in China’s demand and the fact that supply chains were not under as much pressure. Caterpillar predicted that the above-10-ton excavator market in China would remain below 2022 levels this year and that its sales in China would fall below the usual range of 5-10% of total Caterpillar sales in 2023.

3. Dealers Expected to Reduce Inventory Levels in H2 2023

As availability improves, Caterpillar anticipates dealers will reduce their levels of inventory in the second half of the year, resulting in a roughly flat year compared to 2022. Dealers added $1.4 billion to their inventories in the second half of 2022, but Caterpillar does not anticipate this trend to reoccur in 2023.

4. Bumper Margins Driven by High Prices and Lower Manufacturing Costs

Caterpillar’s adjusted operating profit margin was 21.1% across the board, while it was 26.5% in the division for the construction sector. Bumper margins resulted from high prices and lower manufacturing costs due to higher-than-anticipated sales volumes and reduced freight costs. However, the positive impacts of cost absorption are not expected to persist in the second half of the year.

5. U.S. Government Stimulus Driving New Orders

Caterpillar has already begun to notice the benefits of infrastructure spending promised by initiatives like the Bipartisan Infrastructure Law (BIL), which is estimated to involve up to $550 billion in additional spending. The company has already seen an increase in new orders for projects that don’t require a lot of permitting, like resurfacing roads.

6. European Building More Resilient Than Anticipated

Business activity in Europe, the Middle East, and Africa is predicted to pick up in 2023 compared to 2022. The Middle East’s particularly high demand for construction played a significant role in that, and despite the economy’s continued uncertainty, the company noted that European construction was “more resilient than we previously anticipated.”

7. Energy Transition Drives Future Demand for Strong Machinery

Caterpillar anticipates strong demand for mining equipment, spurred by the switch to new energy sources. The company also expects the fleet’s aging and the reduced number of parked vehicles to enhance future demand for its products and services. The energy transition is expected to support rising commodities demand, increasing Caterpillar’s entire addressable market and presenting new opportu