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Caterpillar shares slump on sales warning as machinery demand cools

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Expect Q2 hit on changes in dealer inventories - CFO

Sales miss estimates as Europe, China weakness weighs

Shares fall 7%

Adds CEO, CFO comments, details on inventories

By Deborah Mary Sophia

April 25 (Reuters) -Caterpillar CAT.N on Thursdaywarned of a sales drop in the current quarter as volumes take a hit from dealers tightening equipment inventories, sparking worries that a months-long boom in machinery demand may be coming to an end.

Shares of the global economy bellwether slumped 7% in morning trade as it said end-user sales of its machines was weaker than planned. The stock had gained about 23% for the year so far as of Wednesday's close and hit a record high earlier in April.

Caterpillar reported weak construction equipment sales in all regions except North America, whereconstruction demand is expected to stay healthy forthe rest of the year thanks to the U.S. government's $1 trillion infrastructure law.

Still, that was not enough to offset a slump in demand in Europe and prolonged weakness in China, where economic uncertainties have weakened construction activity, prompting a cutbackin production of certain machines.

"We've been pretty disciplined about making sure that we have cut production like, for example, in excavators ... where we do see softness in the market," Caterpillar CFO Andrew Bonfield said.

Sales at Caterpillar's construction equipment business, which makes its ubiquitous yellow excavators, fell 5% in the first quarter, while its segment that caters to natural resources industries reported a sales decline of 7%.

"I do think we have to kind of re-evaluate and think through what execution would look like. (Machines sales) came in a bit weaker and that doesn't give me great confidence as we head through the year ... we definitely are walking away with more questions," M Science senior analyst Alex Prudhomme said.

The Texas-based companyforecast roughly flat sales for the year.

Still, Caterpillaris banking on higher prices and flattening manufacturing costs to pad margins in the second quarter. Its first-quarter adjusted profit of $5.60 per share surpassedestimates of $5.14, according to LSEG data.


Coming off of a strong 2023 where supply chain concerns and soaring demand prompted dealers to bulk up on heavy equipment, U.S. machinery makers are now seeing a moderation in product stocking at dealers, forcing them to tighten their inventories.

Caterpillar said dealerinventories for machines grew a higher-than-expected$1.1 billion in the quarter due to sales to end-users being "modestly lower" than it had anticipated.

Its order backlog increased just $400 million on a sequential basis, but executives said they were confident that end-market demand would be stable this year.

"Dealer inventory is comfortably within what we consider a typical range, so we are not concerned about it," CEO Jim Umpleby told analysts on a post-earnings call.

Still, with investors zeroing in ondealer inventories, Caterpillar's results dragged shares of its rivals Deere DE.N and CNH Industrial CNHI.N down more than 1% onThursday.

For the first quarter ended March 31, Caterpillar'srevenue fell slightly to $15.80 billion, missing estimates of $16.04 billion.

Reporting by Deborah Sophia in Bengaluru; Editing by Saumyadeb Chakrabarty and Devika Syamnath


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