(Reuters) -Caterpillar reported a double-digit increase in operating profit on Monday, beating Wall Street estimates as mining equipment sales remained robust and higher prices across its machinery divisions helped margins.
Shares for the Texas-based company were up 4.4% before the bell.
Expenditure on heavy machinery held steady among commercial clients. Dealer inventories fell for the first time in four quarters, by $900 million, in an encouraging sign that spending remains resilient, helped by President Joe Biden’s $1 trillion infrastructure law to upgrade roads, bridges and other transportation infrastructure.
Analysts expect commercial construction, which accounts for 75% of Caterpillar’s business, to help safeguard the company’s margins this year despite an anticipated slowdown in global economic growth.
“This stock has really become a barometer for not just the industrial economy but the global economy writ large – it has also been more resilient than expected,” said Kristen Owen, executive director at Oppenheimer & Co Inc.
Retail sales in North America were up 11% year on year. Purchases for commercial customers in the Asia Pacific region were down 5% as China’s troubled property market continues to drag on sales in the region.
The company’s profit margins have been helped by a $28.1 billion order backlog for construction equipment and demand from customers in oil and gas, power generation, rail and defense in the past year.
Despite drilling at North American oil rigs showing signs of weakening, the industrial powerhouse is still benefiting from higher purchase volumes for its haul trucks and other mid- to large-sized mining equipment.
Purchases of heavy machinery from construction and mining industries aided its full-year operating margin. Profit for the world’s largest construction company in the energy and transportation segment rose 21% from the year prior.
Caterpillar’s earnings have also been shielded by effective cost controls and price hikes to fend off inflationary pressures.
Its operating profit margin increased to 18.4% in the fourth quarter from 10.1% a year earlier.
The company’s fourth-quarter profit rose to $2.68 billion, or $5.28 per share, topping consensus estimates of $4.75 per share.
Sales and revenue for the quarter ended Dec. 31 were in line with analysts forecasts, rising to $17.1 billion from $16.6 billion.
(Reporting by Shivansh Tiwary in Bengaluru and Bianca Flowers in Chicago; editing by Sriraj Kalluvila and Jason Neely)
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