Cat reports profit, albeit a lower one, for 2013
- Details
- Published on Sunday, 26 January 2014 20:36
- Written by Paul Gordon
Caterpillar Inc. on Monday reported that while sales and revenues were down again, the fourth quarter profit was up from a year earlier and that other signs were pointing to stability in 2014.
With record operating cash flow and plans to buy back another $10 billion in stocks, as well as improved market position, the company chose to accentuate the positive in its fourth quarter and year-end 2013 results, which included an overall profit.
Caterpillar had sales and revenues of $55.66 billion in 2013, down 16 percent from $65.88 billion in 2012. Profit for the year was $3.79 billion, or $5.75 a share, a decline of about 33 percent from the 2012 profit of $5.68 billion, or $8.48 a share.
In the fourth quarter sales and revenues were down 10 percent from a year earlier at $14.40 billion, from $16.08 billion, but profit was higher at $1.003 billion, or $1.54 a share, compared with $697 million, or $1.04 a share, in the fourth quarter a year ago. Even without two extraordinary items that added to the profit in the fourth quarter of 2012, the company had a higher profit in 2013, it said in a news release.
The culprit hampering sales and revenues was, as expected, a sharp decline in the mining industry. Sales in that industry were down even more than Caterpillar expected coming into 2013.
But the company reported $9 billion in operating cash flow in 2013.
"In such a challenging environment, I am proud of the way our employees came together in 2013. Despite a sales and revenues decline of about $10 billion, we set a record for operating cash flow, strengthened our balance sheet and improved our overall market position for machines. We continued to improve safety in our facilities and the quality of the products we ship each day," said Chairman Doug Oberhelman in a prepared statement.
"Cost flexibility is critical to our strategy and was a significant focus in 2013 as we took substantial actions to help maintain profitability as sales declined. It wasn't easy, especially for our employees who endured an incredibly tough year, but the actions we initiated helped us deliver strong operational performance in 2013," he said.
The company announced it plans to repurchase $1.7 billion worth of Caterpillar common stock during the first quarter, which would complete a $7.5 billion repurchase authorization that was set to expire on Dec. 31, 2015, which was originally approved by the Board of Directors in 2007.
Also, the company said, the board has approved a new $10 billion stock repurchase program, which will expire on December 31, 2018.
"The completion of our previous program and the decision to announce a new $10 billion program are a result of our record cash flow, the strength of our balance sheet and our confidence in the long-term future of Caterpillar," Oberhelman said.
Wall Street reacted favorably to the results, partly because the revenues and profit beat the projections of analysts; they'd predicted a profit of $1.28 a share. It snapped a string of five consecutive quarters during which the profit missed the analysts' estimates.
Caterpillar stock ended the day's trading on the New York Stock Exchange at $91.29 a share, up $5.12 a share. More than 22 million shares, or more than four times the daily average were traded.
In a meeting with reporters Monday, Group President and Chief Financial Officer Brad Halverson said the company found many reasons to be encouraged going into 2014, including strong sales in its power systems division and the fact margins were back almost where they should be in construction equipment revenues.
Noting that most of the sales decrease was in mining, Halverson said the company isn't overly concerned or second guessing itself in its acquisition a few years ago of Bucyrus Mining Equipment Co. of Milwaukee. "It's easy to talk about how things are in the short term but in the medium or long term we are going to expand the value of what we deliver to our mining customers. Mining will turn around," he said.
Remarking about the significance of the record cash flow, Halverson said that when Caterpillar's balance sheet was not strong coming out of recession of 2008-2009, with a debt-to-capital ratio of about 50 percent, so cash flow became a top priority. Today, that ratio is below 30 percent, its lowest in more than 25 years. "Our cash position allows us to do what we want to do, to grow and add value for our customers, make sure we have a well-funded pension plan and a strong return to our shareholders," he said,
Regarding 2014, Halverson said sales and revenues in North America picked up in 2013, which was a bright spot and is a good harbinger for this year. "Now if we could get an infrastructure bill, that would be a big plus," he said, referring to the need in the U.S. for highway and infrastructure improvements.
Caterpillar reported that it lowered inventory by $2.9 billion in 2013 while its dealers lowered their inventory by $3 billion. The reductions, the company said, were "a significant sales and production headwind" but that "we believe the significant impact on our sales is largely over."
The company said its expectation of lower sales and revenues, particularly in mining, caused it to focus on reducing costs in 2013. It did so to the tune of $1.2 billion by closing some small facilities and the downsizing of others and reducing nearly 2,000 management and support positions.
Caterpillar improved its market position for machines again in 2013, the third consecutive year it has done so, and announced sales and revenues in China were up more than 20 percent in 2013 over 2012.
"There was a lot of sacrified in 2013 by our employees and their families," Halverson said, adding those sacrifices will make the company stronger in the long run.
In the short term, however, Caterpillar isn't expecting too much of a jump in 2014. It's outlook for the year has sales and revenues in 2014 coming in again at about $56 billion, plus or minus 5 percent, with profit about the same as well.
"We see some signs of improvement in the world economy, which should be positive for sales in our Construction Industries and Power Systems segments. However, despite our expectation that mine production will continue to increase, we expect mining companies to further reduce their capital expenditures in 2014. As a result, we're expecting sales in Resource Industries to decline modestly, Oberhelman said. "We've already taken a number of restructuring actions to help improve our financial results and expect to take additional actions in 2014. We continue to be cautious and are making the tough decisions necessary to better position us down the road when economic conditions improve and our sales rebound."
