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Cat reports Q3 profit, improves outlook

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Caterpillar Inc. overcame flat sales and restructuring costs to post a billion dollar profit in the third quarter, capitalizing on business and geographic diversity to beat Wall Street estimates for the fourth consecutive quarter, the company announced Thursday.

Those results caused the company to improve its profit outlook for the full year despite anticipating sales to end the year flat with 2013, the company said. Its preliminary outlook for 2015 was “cautiously optimistic” as the company expects sales to remain flat to slightly up for the year.

Caterpillar reported a profit of $1.017 billion, or $1.63 a share, on sales and revenues of $13.549 billion. Despite restructuring costs taking 9 cents a share from the profit, it still was up from the third quarter of 2013, when profit was $946 million, or $1.45 a share, on sales and revenues of $12.678 billion.

For the first nine months of the year profit was $2.938 billion, or $4.73 a share, an increase from a profit of $2.786 billion, or $4.30 a share, through the first three quarters of 2013. That is despite the fact sales and revenues were down slightly, to $38.642 billion from $39.048 billion through the third quarter of 2013.

The third-quarter results beat the consensus estimate of Wall Street analysts, who predicted a profit of $1.36 a share on sales and revenues of $13.2 billion.

Because of that and the company’s improved outlook, Caterpillar stock was one of the darlings of Wall Street on Thursday. Stock closed the day at $99.27 a share, up $4.70, or 4.97 percent. More than 11.2 million shares were traded on the New York Stock Exchange, which was more than twice times the average daily volume.

In its updated outlook, the company said it now expects the full-year 2014 profit to be about $6 a share on sales and revenues of $55 billion. The previous outlook called for $5.75 a share of sales and revenues of $54 to $56 billion. Excluding restructuring costs estimated at $450 million for the year the company said 2014 profit would be about $6.50 a share.

“We’re pleased with the third-quarter profit improvement considering world economic growth remains slower than we’d like,” said Doug Oberhelman, chairman and CEO. “We’ve continued to focus on what we can control — cost management and operational execution. We continue on a Lean manufacturing journey and are focused on improving safety, quality, efficiency and inventory turns. We’re making progress and it is beginning to be reflected in our results. The diversity of the businesses we’re in and the strengthening of our operational performance have been key to helping us improve results and our competitive position in this weak economic recovery. Our broad geographic reach and manufacturing footprint help mitigate the impact of currency fluctuations. In fact, currency impacts were positive in the third quarter.

“In addition to the profit improvement, we have a strong balance sheet and through the first nine months of the year, we’ve had good cash flow.  So far this year, we’ve returned value to our stockholders by repurchasing $4.2 billion of Caterpillar stock and raising our quarterly dividend by 17 percent. We are confident that, when we see more significant economic growth around the world, our consistent focus on operational performance will have prepared us to deliver even better results,” Oberhelman added.  

“The fact that we continue to raise our profit per share outlook on relatively flat sales is a testament to our diverse portfolio of businesses, disciplined cost control and operational execution.  I’m proud of our people for what they’ve been able to accomplish in the current economic environment.  We have an exceptional team around the world and in uncertain times like these, they are especially important to us. As we move into the final quarter of 2014, we expect to build on what we’ve been working on: strategy execution, operational performance, cost management, cash flow, our healthy balance sheet and improving our market position,” Oberhelman said.  

In its preliminary 2015 sales and revenues outlook the company said it believes it likely world economic growth will improve next year. Still, it said, there are significant risks and uncertainties that could temper growth in 2015, including political conflicts and social unrest in several regions. So it expects sales and revenues to be flat to slight up from 2014.

“At this point, our view of 2015 sales and revenues isn’t significantly different than 2014.  Our order backlog was up a little in the third quarter and was slightly higher than at this point last year.  We’re hopeful that economic growth will improve in 2015, but are mindful of the uncertainties and risks.  We have continued to improve operational execution, and if we see more positive economic momentum, we believe we’re well- positioned to respond and deliver for our customers and stockholders,” Oberhelman said.

In a meeting with reporters Thursday, Group President and Chief Financial Officer Brad Halverson said the company is being “cautiously optimistic” in improving its outlook in spite of flat sales largely because it has been doing better than expected. “We try to make a very educated estimate and that’s what we tell the street,” he said.

Beating expectations, he added, speaks well for the employees at Caterpillar as well as suppliers and dealers. “The mining drop was very tough on a lot of people. But as Caterpillar people do, we got to work and we have delivered very consistent operational results,” he said, adding that restructuring the past year or so has kept the company efficient and nimble.

Saying the company has been in a period of flat sales, Halverson added that “we serve the industries that make the world grow. We believe we’re in the right industry. So, growth will come.”

Should a surge in demand happen quickly, the restructuring done throughout the Caterpillar system has the company ready to meet it, he added. “We have the capacity and we are well positioned for it,” he said.

By segment, energy and transportation performed best in the third quarter, improving by 13 percent overall. Construction equipment sales improved 9 percent in North America, but was off 2 percent overall from a year earlier.

Resource industries, which has been hit the hardest and undergone the most restructuring, continued to struggle as it was down 19 percent overall. But the company indicated it believes mining has bottomed out, that even though orders for new equipment aren’t growing mining companies are increasing production at existing mines.

Other highlights from the third-quarter report include:

  • The company said incentive bonuses given to non-union employees each spring will be considerably higher next year, which officials said will be positive for the local economy.Caterpillar worldwide full-time employment was 114,352 at the end of the third quarter of 2014, compared with 121,506 at the end of the third quarter of 2013, a decrease of 7,154 full-time employees. The flexible workforce increased by 1,017 for a total decrease in the global workforce of 6,137. The decrease was primarily the result of restructuring programs.  
  • Cat Financial had third-quarter revenues of $743 million, an increase of $44 million, or 6 percent, over the third quarter of 2013. Third-quarter 2014 profit after tax was $148 million, a $31 million, or 26 percent, increase from the third quarter of 2013.
  • Caterpillar worldwide full-time employment was 114,352 at the end of the third quarter of 2014, compared with 121,506 at the end of the third quarter of 2013, a decrease of 7,154 full-time employees. The flexible workforce increased by 1,017 for a total decrease in the global workforce of 6,137. The decrease was primarily the result of restructuring program.
  • To read Caterpillar's full report visit www.caterpillar.com.

 

About the Author
Paul Gordon is the editor of The Peorian after spending 29 years of indentured servitude at the Peoria Journal Star. He’s an award-winning writer, raconteur and song-and-dance man. He also went to a high school whose team name is the Alices (that’s Vincennes Lincoln High School in Indiana; you can look it up).