Cat sales, profits lower in Q2; further layoffs may result

Log in to save this page.
600px Caterpillar logo

There were no major surprises in Caterpillar Inc.’s second quarter financial report released on Monday. Sales and revenues were down as were profits. But they were pretty much in line with, and even a little better than, with expectations of the company and the investment community.

But while that may have been ok with Wall Street, it may not bode well for Caterpillar employees during the rest of this year, company officials acknowledged. They said more layoffs, from both production and salaried personnel, may be necessary as sales continue to lag on a global basis.

Caterpillar reported a profit of $550 million, or 93 cents a share, during the second quarter, compared with a profit of $802 million, or $1.31 a share, during the second quarter last year. For the first six months of 2016, the profit was $821 million, or $1.41 a share, compared with $2.05 billion, or $3.39 a share, through the first half of 2015.

The second quarter profit would have been $1.09 a share excluding restructuring costs.

Sales and revenues were $10.3 billion in the second quarter, compared with $12.3 billion a year earlier. Through June they were $19.8 billion, compared with $25 billion through the first half of 2015.

The final numbers for the quarter as well as the continuing economic struggles in the regions of the world where Caterpillar does business caused the company to slightly downgrade its outlook for the remainder of the year. The company expects full-year sales and revenues to be about $40 billion and profit to be about $2.75 a share, down from the previous outlook of $3 a share.

The profit forecast takes into consideration $700 million in restructuring costs, up from $550 million in the first quarter outlook. Additional employment cuts are expected in the second half of the year, causing the increase in expected restructuring costs. Caterpillar officials did not put a number or location on any expected layoffs.

Caterpillar noted in its report that its revised outlook is in line with the estimates of Wall Street analysts who follow the company.

The second quarter profit, however, beat Wall Street estimates. The consensus of those analysts was a profit of 96 cents a share without figuring in restructuring costs.

As a result Caterpillar stock rose $4.06 a share on Tuesday, closing trading on the New York Stock Exchange at $82.75 a share. About 10.7 million shares traded; that is more than twice the average daily volume.

Despite the lower profit and lower outlook, Caterpillar Chairman Doug Oberhelman said in a prepared statement that he was pleased with the company’s financial performance “and focus on our long-term strategy given the difficult economic and industry environment we’re facing. Our goal when sales decrease is to lower costs so the decline in operating profit is no more than 25 to 30 percent of the decline in sales and revenues.”

“Together with our dealers, we’re having success managing through the downturn in industries like mining and oil and gas, and in sluggish economic conditions in much of the developing world. In what is likely to be our fourth down year for sales and revenues, we’re proud of what we’re accomplishing – our machine market position has increased, including in China, product quality continues to be at high levels, and the safety in our facilities is world class,” he said.   

Regarding the revised outlook, Oberhelman said, “Despite a solid second quarter, we’re cautious as we enter the second half of the year. We’re not expecting an upturn in important industries like mining, oil and gas and rail to happen this year. We’re continuing significant restructuring plans, which are designed to bring our cost structure more in line with demand while maintaining our capability to quickly serve our customers when our business recovers. Once it does recover, we expect substantial incremental profit improvement, realizing the benefits of the tough actions we’re implementing now coupled with our ongoing investments in products and digital capabilities.

“Amidst these very challenging market conditions, our balance sheet remains strong, and our employees are delivering better performance on everything from safety, quality and cost management to machine market position. I’m inspired by our people as they’re the primary reason we’re weathering this downturn as successfully as we are.”

In a meeting with reports, Mike DeWalt, vice president of financial services, echoed much of what Oberhelman said. “The environment around the world hasn’t gotten any better. The products we sell are mostly to replace equipment that is wearing out and customers are choosing to put that off,” DeWalt said.

He said the company needs to see better economic growth worldwide to turn its own finances around. For example, the U.S. GDP is at 2 percent and even at 3 percent it would make a significant difference in growth.

DeWalt said he didn’t know how to answer a question of how much restructuring will be enough. What has been done to date, including the elimination of nearly 14,000 jobs around the world in the past year – to a total of 112,900 full-time and flexible workforce – at the end of the second quarter – has helped, but not enough to offset the losses in the mining and oil and gas sectors.

Of the jobs that have been eliminated, 7,500 are from the U.S. workforce and 6,400 from the non-U.S. workforce, the company said. The majority – 11,200 – have been full-time employees, including those who took early retirement offers.

While he acknowledged there will be additional layoffs, DeWalt said those will come as needed in each of the company’s business units, each doing what is necessary. “There won’t be a big bundle all at once,” he said.

Caterpillar’s sales were lower in every business segment, and by 16 percent total, when compared to a year earlier. They also were down in every segment in every region where the company does business, with one exception: construction industries sales were 12 percent higher in the Asia/Pacific region, but that was largely because of favorable changes in dealer inventories. 

n twice the average daily volume.rading on the New York Stock Exchange at $82.75 a share. A

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).