Cat reports improved Q1 profit
- Details
- Published on Thursday, 24 April 2014 17:43
- Written by Paul Gordon
Better than expected results in two of its business units propelled Caterpillar Inc. to an increase in first quarter profit even though overall sales were basically flat when compared with the first three months of 2013, the company reported Thursday.
Caterpillar reported a profit of $922 million, or $1.44 a share, on first quarter sales and revenues of $13.241 billion. The profit was 5 percent better than in the first quarter of 2013 when it as $880 million, or $1.31 a share on sales and revenues of $13.210 billion. The profit-per-share was 10 percent better than a year earlier.
The results beat the expectations of Wall Street analysts, who predicted a profit of $1.24 a share on $13.14 billion in sales and revenues. It was the second consecutive quarter Caterpillar's results were better than the analysts expected.
Investors appeared buoyed by the results and the fact Caterpillar also raised its profit outlook for the remainder of the year. Caterpillar shares were at $105.28 at the close of trading Thursday on the New York Stock Exchange. That was up $1.90 a share as nearly 8.8 million shares traded, well above the average daily volume of 6.3 million shares.
The company said the first quarter profit would have been $1.61 a share if not for the costs associated with previously announced restructuring that totaled $149 million. Those costs mostly stemmed from workforce reductions, with the most significant being at the company's plant in Gosselies, Belgium.
Caterpillar Chairman Doug Oberhelman said the first quarter results showed the value of the company's cost control strategies as well as its diversity.
"Given the business and economic uncertainties around the world and continuing decline in our mining sales, I am pleased with our performance in the first quarter. We understand we don't control the economy and have instead focused on what we can improve. We're lowering costs, improving cash flow and driving value for our customers through the continued deployment of our lean manufacturing initiatives. We see the benefits of these actions in our first-quarter results and in improving market position for many of our products," Oberhelman said.
"This was a quarter that clearly highlighted the diversity of Caterpillar's business across industries and regions of the world, and how that diversity continues to help us through the downturn in mining. Both Energy & Transportation and Construction Industries had good results in the first quarter and performed at levels better than we anticipated," he added.
Caterpillar made no changes to its outlook for future sales and revenues, maintaining the forecast of $56 billion for the year in a range of plus or minus 5 percent. However, it increased its profit outlook by 25 cents a share to $5.55 a share for 2014, which includes anticipated restructuring costs of about 55 cents a share.
Caterpillar said it expects improvement in its construction Industries segment through the rest of the year to about 10 percent over 2013. IT believes the Energy & Transportion segment will improve by about 5 percent. However, it expects the Resource Industries segment, which includes mining, to be worse than originally expected.
In a meeting with reporters, Group President and Chief Financial Officer Brad Halverson said the company doesn't know if the mining industry has bottomed out yet, but added it still is confident there will be a recovery. "Commodity prices are holding up and the world needs commodities. There will be a need to replace equipment so we do believe there will be a recovery," he said.
He added that when that recovery starts and the other business segments are doing well, the company expects business will take off.
The company acknowledged there are still areas of concern around the world, including whether China's economy will improve and whether there will be a peaceful resolution to the conflict in the Ukraine.
Halverson touted improvements in efficiency in Caterpillar factories "by our very talented production workforce" as the reason the first quarter was better than expected and the reason for the improved profit outlook. "We like that we have such a diverse portfolio," he said.
In his written statement, Oberhelman said, "The change in our profit outlook is a result of our very solid performance in the first quarter, while also recognizing the uncertainty we are facing in a number of areas of our business and the continued risk that geo-political events could negatively impact global GDP growth. China is one example of both the potential and uncertainty we face."
He noted that while Caterpillar is doing well in China, that country's leaders are changing its economic model, which he said is "an enormous task that carries risks for the world economy."
He also commented on Ukraine and Russia and how it could affect the world economy if there isn't a peaceful solution. "The global economy remains fragile, and as such, one or two setbacks could create substantial downside risk for the global economic recovery," he said.
Oberhelman said he's had many discussions with Caterpillar's construction industry customers and its dealers throughout the country and hears optimism from them. "While that's encouraging, there's still quite a bit of room for improvement. The U.S. construction industry is still well below its 2006 peak, and we have a real need for infrastructure improvement," he said.
Highlights from the first quarter financial report include:
- Sales volume increased by $156 million total because of improvements in Construction Industries and Energy & Transportation, offset by continued lower volume in Resource Industries. The sales volume increases was largely the result of dealers increasing their inventories in the first quarter.
- Sales increased 16 percent in North America, but declined 12 percent in Asia/Pacific because of lower sales in Australia and by 15 percent in Latin America. They were flat in Europe.
- By percentage, sales in Construction Industries increased 20 percent and increased 8 percent in Energy & Transportation. Sales in Resources Industries declined 37 percent.
- Manufacturing costs decreased $230 million largely because of lower material cost and improved efficiencies resulting from higher production.
- Worldwide full-time employment was 116,579 at the end of the first quarter, compared with 124,874 a year earlier, because of restructuring plans put in place in 2013.
Caterpillar's full report can be viewed at www.caterpillar.com.
