Caterpillar warns of lower sales, margins in third quarter By Reuters

(Reuters) -Caterpillar Inc warned of a fall in third-quarter sales and margins on Tuesday as dealer inventories rose again, stoking worries that demand for its heavy machinery used in everything from construction to mining may have peaked.

Cost controls and price increases have protected profits amid persistent supply-chain disruptions and inflationary pressures, but analysts have flagged that a slowing economy is starting to depress order activity from commercial businesses, which account for 75% of the company’s customer base.

Caterpillar (NYSE:), seen as a proxy for global economic activity, said on Tuesday it was expecting third-quarter sales and operating profit margin to be higher than in the previous year, but lower compared to the second quarter.

The manufacturer reported a $600 million increase in dealer inventory in the second quarter from a year earlier, primarily in its energy and transportation business, as drilling at North American rigs shows signs of weakening.

Backlog at quarter-end increased by $300 million, compared with the prior three months.

Executives have said inventory levels are nearly back to normal. The company’s ramp-up in production is being driven by its strategy to make up for lost sales due to a constrained supply chain, analysts said.

“Our experts believe that if dealer inventory continues to spike and new sales come down, that can indicate the beginning of a near-term downcycle despite the long-term tailwind of infrastructure spending,” said Ryan Keeney, an analyst at research firm Third Bridge.

Meanwhile, Caterpillar reported an adjusted profit of $5.55 per share in the second quarter, beating analysts’ expectations of $4.58 per share.

Sales rose 21.6% to $17.32 billion, above Wall Street estimates of $16.49 billion.