Cat profit up despite drop in sales and revenues

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Getting leaner and more efficient in its manufacturing processes enabled Caterpillar Inc. to improve its first quarter earnings by 26 percent this year despite a 4 percent decrease in sales and revenues from the first quarter of 2014, the company announced Thursday.

As a result, the company improved its profit outlook for the remainder of the year despite maintaining an air of caution going forward.

The company made a profit of $1.11 billion, or $1.81 a share, on sales and revenues of $12.702 billion, compared with a profit of $922 million, or $1.44 a share, on sales and revenues of $13.241 billion a year earlier. Those figures include restructuring costs as the company reduced expenses, with those costs affecting the profit by 5 cents a share this year, compared with 17 cents a share in the first quarter of 2014.

The first quarter numbers also were helped by a pre-tax gain of $120 million, or 14 cents a share, from the sales of its remaining interest in a third-party logistics business.

“We delivered solid results for the first quarter of this year, including higher profit than in the first quarter of 2014. Our focus on operational improvement, including lean manufacturing and cost management, is helping in what is a tough time for some of our important cyclical businesses. We continue to execute on improving safety, quality, inventory turns, delivery performance and market position,” said Chairman and CEO Doug Oberhelman.

“The first quarter wasn’t without challenges. Sales and revenues were off about 4 percent from the first quarter of last year, mining remained weak and construction was down in most regions. On the plus side, Energy & Transportation turned in another great quarter, although we don’t expect this to continue due to the oil-related portion of the business,” Oberhelman said in a prepared release. 

Caterpillar kept its 2015 outlook for sales and revenues at about $50 billion, which is about $5 billion less than in 2014, but the company improved the profit outlook to $4.70 a share, or $5 a share without restructuring costs. That is up from the previous profit forecast of$4.60 a share, or $.75 excluding restructuring costs. The company did, however, increase its anticipated restructuring costs from $150 million to $250 million for the year, largely related to mining products plants.

Investors reacted positively early in the trading day, but Caterpillar stock dropped in the last hour and ended the day at $84.79 a share, down 8 cents. It had reached $87.50 by mid-afternoon Thursday before falling. Nearly 18.9 million shares, or nearly three times the daily average, were traded on the New York Stock Exchange.

Oberhelman cautioned that there is still uncertainty surrounding the remainder of the year.

“We had a solid first quarter, which led to raising the profit outlook for 2015. However, we continue to face headwinds and uncertainty in 2015, and our outlook for the year reflects that. We expect sales and profit in each of the remaining three quarters of 2015 to be lower than the first quarter. We expect sales for oil applications to decline starting in the second quarter, and from a profit perspective, the first quarter included the gain on the sale of our remaining interest in the logistics business and that won’t repeat. The first quarter is usually the most seasonally favorable of the year for costs, and we don’t expect the rest of the year to be as favorable. In addition, we expect some increase in research and development expense as we go through the year,” Oberhelman said.

“We’re working to improve what we can control so that when our cyclical businesses recover, we will be ready to respond quickly, benefiting our company, our customers and our stockholders,” he said.

Caterpillar said it expects world economic growth to be about 2.7 percent in 2015, compared with 2.6 percent in 2014.

“Despite our outlook for modest improvement in global economic growth versus 2014, significant risks and uncertainties remain that could temper growth in 2015,” the company said. “Political conflicts and social unrest continue to disrupt economic activity in several regions; in particular, the Commonwealth of Independent States, Africa and the Middle East. The Chinese government’s push for structural reforms is slowing growth, and the ongoing uncertainty around the direction and timing of U.S. fiscal and monetary policy actions may temper business confidence.”

The outlook for sales and revenues remains unchanged at about $50 billion for 2015, down from $55.2 billion in 2014. As it said in January, the company believes the decline in sales and revenues will largely be from lower oil prices affecting sales of reciprocating engines and construction equipment in oil-producing countries worldwide. Mining equipment sales are expected to be lower still as are sales in the rail industry, as well.

The company attributed the $539 million decline in first quarter sales and revenues to lower sales volume and an unfavorable impact of currency from the weakening of the euro and Japanese yen.

It said sales declined in all regions of the world except North America, where sales were up 9 percent because demand was higher for construction equipment and for oil and gas application.

The largest decline was in Latin America, down 19 percent because of lower demand for construction equipment. In Europe, Africa and the Middle East sales declined 11 percent and in the Asia/Pacific region sales declined 13 percent.

The company said sales were flat in Energy & Transportation but decreased in Construction Industries and Resource Industries. Cat Financial Products’revenues were about flat.

Caterpillar’s restructuring resulted in 3,257 fewer employees worldwide at the end of the first quarter. Full-time employment was 113,322 at the end of March, compared with 116,579 at the end of the first quarter of 2014. However, the flexible workforce increased 772, resulting in a total decrease in the global workforce of 2,485.  

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).