Industrial Order Slowdown Perplexes Investors

Expectations for a capital-spending super-cycle are colliding with worries about an economic slowdown, and this is creating some weird distortions in how investors view industrial stocks and earnings.

Caterpillar Inc. on Thursday reported first-quarter results that were much more robust than analysts expected and said that its overall outlook for 2023 had brightened amid continued healthy demand for its products. But the construction and mining equipment company’s order backlog was flat in the first quarter compared with the final months of 2022, and Chief Executive Officer Jim Umpleby said he expected dealers to scale back inventory stockpiles in the second half of the year as supply-chain logjams ease. When “availability improves, order rates typically normalize as dealers can wait longer to place orders,” Umpleby said on a call to discuss the company’s results. “Our healthy backlog continues to underpin our constructive views about our end markets.” Investors weren’t buying it: Caterpillar shares fell as much as 5.6% before recovering some of their losses.

Elsewhere on Thursday, Rockwell Automation Inc. also reported better-than-expected quarterly results and now forecasts as much as 17% organic sales growth for fiscal 2023. But the company’s projection for $9 billion in orders this year implies a slight moderation in the coming months. This, too, is a reflection of improving component availability and shorter waiting times, not a drop-off in demand, with cancellation rates at Rockwell remaining within normal historical ranges of low-single digits through April. “As lead times improve, as they are across a lot of our product lines, you’ll see machine builders not having to provide orders of the same size to have as many months of coverage,” Rockwell CEO Blake Moret said on a call to discuss the results. Investors in the automation-equipment manufacturer were much more accepting of this explanation: Shares of Rockwell were up more than 3% on Thursday afternoon.