Shares Caterpillar Premarket trades for (NYSE:) fell 2.7% after Q1 results were reported by the company.

The company reported Q1 earnings and revenues that exceeded expectations. Adjusted CATEPS (CAT) of 2.88 was reported for the quarter. That compares with $2.87 in a year ago quarter and consensus estimates at $2.61. Revenue was $13.59 billion. That’s 14% more YoY than analyst estimates of $13.43 million.

The Machinery, Energy & Transportation segment generated revenue of $12.89 billion in the period, up 15% YoY and above the expected $12.79 billion.

Due to the strong demand from end users and the pricing of the product, Caterpillar expects its Q2 2022 results to be better than the Q1 ones. Caterpillar projects that Q2 2022 will have an adjusted operating profit margin of about 5%, which is similar to last year’s quarter. It also anticipates higher prices to offset the increased manufacturing costs.

Caterpillar shares were sold after weakening demand in China.

“Lower sales in China primarily driven by lower end-user demand were partially offset by increased sales across the majority of the region,” CAT said in a statement.

Caterpillar stated, “Dealer inventories grew by $1.3 billion in the first quarter,” up from $700M increase during the same time last year.

“Unfavorable manufacturing costs primarily reflected higher material and freight costs,” the company added.

Jerry Revich, analyst at Goldman Sachs commented on the following:

“CAT delivered strong 1Q results including margins that were 30 bps ahead of our estimates and orders that were up 17% yoy (1.3 book to bill). The quarter saw dealer inventories rise by $1.3 Bn, which is more than the $450 Mn we expected and +$1.2 Bn in 2018, roughly in line with inflation. This indicates that there may be an increase in demand. Dealer inventory build was a $850 mn revenue tailwind in the quarter compared to our estimate vs. a $500 mn revenue beat,” Revich said.

By Senad Karaahmetovic