Cat makes a Q2 profit, albeit a lower one
- Details
- Published on Wednesday, 24 July 2013 17:22
- Written by Paul Gordon
Caterpillar Inc.'s topsy-turvy year continued in the second quarter; it was profitable, but only about half as much as in the second quarter of 2012.
A struggling mining industry again was the problem and dealer reductions in inventory added to it, the company reported Wednesday.
But again the company still made a profit and it expects higher profits in the second half of 2013 even though it lowered its outlook for the remainder of the year.
Company executives remained upbeat even though it was the third consecutive quarter in which Caterpillar missed Wall Street expectations and the second consecutive quarter it lowered its outlook.
"Even though our sales and profit in the second quarter are down from last year, I'm pleased with how our team has performed. We've taken action to respond to the economic environment we find ourselves in, and operationally, the team has done a great job," said Chairman and CEO Doug Oberhelman.
Noting the $1 billion in dealer machine inventory reductions and a reduction of $1.2 billion in its own inventory in the quarter, Oberhelman said the company's revised outlook "doesn't reflect additional currency losses or reductions in our inventory during the second half of 2013. As a result, we expect profit to improve in the second half of the year."
Caterpillar reported a profit of $960 million, or $1.45 a share, in the second quarter, which was 43 percent lower than the record profit delivered in the second quarter of 2012, $1.7 billion, or $2.54 a share.
Sales and revenues were off more than 15 percent, from $17.4 billion to $14.6 billion.
Both profits and revenues were well below the estimates of Wall Street analysts. The consensus of 19 analysts predicted a profit of $1.70 a share and revenues of $14.92 billion.
That along with the lowered outlook for the rest of 2013 brought Caterpillar's stock value down more than $2, to $83.44 a share at the close of trading on the New York Stock Exchange. More than 16.5 million shares, or more than 2½ times the daily average, were traded on Wednesday.
For the first half of 2013 profit was $1.84 billion, or $2.82 a share, compared with $3.29 billion, or $5.04 a share, recorded in the first six months of 2012. Sales and revenues for the first half of the year were $27.37 billion, compared with $31.97 billion a year earlier.
In a conference call with analysts, Caterpillar executives were quick to remind their listeners that the numbers posted in the second quarter and first half of 2012 were all-time highs for the company and thus any decline from those numbers seemed more pronounced.
They continued accentuate positives, including the high cash position the company is in because of the reduction in its own inventory as well as in research and development expenses.
Oberhelman said the company is "underselling end-user demand this year and it sets us up for better sales in 2014."
Oberhelman said that operationally, "we've done very well. We've taken action to aggressively lower costs, and we've been successful in the marketplace with end-user demand for Cat machines outpacing the industry overall. In addition, our business in China improved — our sales and end-user demand for Cat machines were up in the quarter while the overall construction equipment industry was down. Cash flow was outstanding and coupled with our strong balance sheet, puts us in a position to repurchase more Caterpillar stock this year. I am confident we are positioned to improve results in the second half of 2013."
Other executives also emphasized that despite lower sales in the mining and construction industries, Caterpillar still performed better than its competitors and that there are signs a turnaround is coming. For example, the company said, actual commodity production in the mining industry was up in the second quarter, which bodes well for Caterpillar when mining company loosen the reins on equipment purchases. "The long-term prospects are very attractive," said Mike Dewalt, director of investor relations.
The company revised its outlook for the year to reflect sales and revenues from $56 billion to $58 billion, with profit of about $6.50 a share at the middle of the sales and revenues outlook range. The previous outlook for 2013 sales and revenues was $57 billion to $61 billion, with profit of about $7 a share at the middle of the sales and revenues outlook range.
The company said the lower outlook was less about demand than about a larger-than-expected reduction in inventory. "During the second quarter, dealers increased their utilization of inventory from our product distribution centers, which allows them to meet customer demand with less inventory," Oberhelman said. "With the sharp reduction in dealer inventory and the decline in mining, 2013 is turning out to be a tough year and we've already taken action to reduce costs. During the first half of the year, we've had temporary factory shutdowns, rolling layoffs throughout much of the company, reductions in our flexible workforce, and we've reduced discretionary and program costs. While we've taken significant action already, we will be taking additional cost reduction measures in the second half of 2013."
Caterpillar's worldwide workforce was 122,402 at the end of the second quarter, about 10,400 less than a year earlier. A significant portion of that, more than 6,500, was because of diverstitures, including the sale of the company's interest in a third party logistics business and some of the Bucyrus distribution business.
Also, the company's flexible workforce was reduced by nearly 10,000.
Brad Halverson, group president and chief financial officer, said the company is not ready to start sounding any alarms about its finances. Rather, it is focusing on executing plans, making good resource decisions and implementing the Caterpillar Enterprise System full-force so as not to be as affected by a down cycle.
"We've managed cycles around here for a long time. This is no different. We are managing this one. We want to make sure people understand that," Halverson said in a meeting with reporters.
Halverson said Caterpillar's balance sheet is "very strong" and that the second quarter was outstanding in terms of cash flow. With that, he added, the company will continue to invest in capital expenditures and research and development "and we are going to be smarter about the things we want or need that could be delayed."
The company said sales and revenues were down in each of its machinery and power systems segments, down 17 percent total, and up 7 percent in its financial products business.
The top performing equipment segment was power systems, which Halverson noted was the segment with the most diverse product line. That segment was down 5 percent, while construction industries sales were off 9 percent. Sales in the resource industries segment, which includes mining, was down 34 percent.
That was significant, DeWalt said, because the resources industries segment accounts for 24 percent of Caterpillar's total business.
The company also revised its economic outlook downward because of slower-than-expected worldwide economic growth. Caterpillar now expects worldwide economic growth of about 2 percent, slightly lower than last year.
"Although we expect some improvement in the second half, the improvement will be less than previously expected," the company said.
