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Caterpillar Profit Tops Estimates as Supply-Chain Snags Loom

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(Bloomberg) -- Caterpillar Inc. said demand is looking strong into 2022, though supply chain snags will make it more difficult for the U.S. company to meet customers’ needs.

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The equipment producer reported third-quarter earnings that beat analysts’ expectations as demand for heavy machinery across the construction and mining sectors outweighed concerns of ongoing supply-chain hangups.

While Caterpillar’s results underscore the economy’s resilience in the face of global supply-chain woes, they signal further price inflation to come as the company is able to pass along higher costs to its customers. The broader economy suffered a letdown in the third quarter, with the U.S. growing at the slowest pace during the pandemic recovery with price hikes, shortages and transport bottlenecks weighing on spending.

“We experienced supply chain challenges, like many other industrial companies,” Chief Executive Officer Jim Umpleby said Thursday in an earnings call with analysts. “We believe our sales in the third quarter would have been higher, if not for these issues.”

Though Caterpillar said there are no signs of strong demand letting up, executives warned that the company will fall short of its expectations for fulfilling customer demand this year.

“We’re a little bit less than where we expected to be,” Chief Financial Officer Andrew Bonfield said in a phone interview. “It means that they may be waiting for some of their machines, but the demand won’t disappear, it just will probably make the sales line extend out for longer than it normally would have done through the rebound.”

Shares of Caterpillar rose 3.5% to $202.97 at 11:23 a.m. trading in New York. The stock is up 11% this year, lagging the 22% gain of the S&P 500 index.

“We continue to expect price offset higher manufacturing costs for machines in 2021,” Bonfield said during the call. “Although further disruptions in the supply chain can make that more difficult.”

Nothing in Caterpillar’s outlook indicates anything other than strong demand trends to continue into 2022, while supply-chain snags will remain a problem into next year too, the financial chief said. One area of weakness is in China, where Bonfield said the company expects sales will drop in the final quarter of the year. The company sees little change for growth in China for this year.

Strong Demand

Demand for Caterpillar equipment remains strong from North America to Europe and the Middle East to most parts of Asia, and despite inflation in materials and freight costs the company has been able to pass along those costs through price increases of machines. But supply-chain snags aren’t going anywhere.

The company said unfavorable manufacturing costs reflected higher variable labor and burden, primarily freight, and higher period manufacturing and material costs, which were offset by favorable cost absorption and lower warranty expense.

The world’s biggest maker of mining and construction equipment reported adjusted quarterly profit of $2.66 a share, beating the $2.20 a share average of analysts’ estimates compiled Bloomberg.

(Adds executive comments and updates shares from fourth paragraph.)

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