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Caterpillar reports strong third quarter

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It was one heckuva third quarter for Caterpillar Inc. and the company expects the good financials to continue to the end of the year.

Caterpillar on Tuesday reported a third quarter profit of $1.95 a share on revenues of $11.4 billion, well ahead of the numbers posted in the third quarter of 2016, of 85 cents a share on revenues of $9.2 billion.

Through the first three quarters of 2017 Caterpillar has made a profit of $3.44 a share on revenues of $32.6 billion, compared with a profit of $1.88 a share on revenues of $$29 billion a year earlier.

The company attributed the improvement largely to higher sales volume and expects it to continue through the fourth quarter. To that end Caterpillar upgraded its outlook for the remainder of the year, now calling for a year-end profit of $6.25 a share, up from $5, and sales and revenues of $44 billion, up from a previous forecast of $42 billion to $44 billion.

"Higher sales volume and our team's focus on cost discipline resulted in improved profit margins across our three primary segments," said Caterpillar CEO Jim Umpleby.

“As a result of our team's strong performance, we are raising our 2017 profit outlook," he added. "We are executing our new strategy for profitable growth based on operational excellence, expanded offerings and services."

The company said it sees continuing strength in several industries and regions, including construction in China, on-shore oil and gas in North America, and increased capital investments by mining customers. “We are working with our supply chain to increase production levels to satisfy customer demand for those markets that have improved,” the company said.

The third quarter results beat the expectations of Wall Street analysts who had forecast a profit of $1.27 a share on sales and revenues of $10.6 billion.

Caterpillar stock price rose nearly 5 percent in trading on the New York Stock Exchange on Tuesday, closing at $138.24. The stock hit a 52-week high of $140.44 earlier in the day. Trading volume was high with nearly 19 million shares trading, well over the average volume is 3.4 million shares a day.

Caterpillar reported improved sales in all its segments, including resources industries, where the mining business is camped. After several years of losses, including a loss of $77 million in the third quarter of 2016, that segment showed a profit of $226 million this year.

Construction Industries still was the driving force and the company’s third quarter profit in that segment was $884 million, compared with $326 million a year earlier. Sales were up 37 percent in that segment and in each region Caterpillar serves.

One of the key movers in that segment was China, where the GDP has remained solid throughout the year.

The Energy and Transportation segment had a profit of $750 million in the third quarter, compared with $572 million in 2016, as sales and revenues improved 12 percent.

Amy Campbell, Caterpillar’s director of investor relations, told reporters this morning that there were no big surprises in any one segment over the others as all showed steady improvement year-to-year. She said company strategies for cost discipline helped build strong margins in all the segments.

“All three segments have some great stories behind their improvement,” she said in a conference call with reporters, the first such call since Caterpillar moved its headquarters from Peoria to Deerfield.

Campbell remarked that demand has been up in all regions, enough so that the company is in a hiring mode once again after reducing employment numbers by the thousands the last few years.

“We are hiring again to meet these higher levels of demand, including in the Peoria region,” she said.

At the end of the third quarter, Sept. 30, Caterpillar had 96,700 full-time employees. While that is 400 below the number of full-time employees a year earlier, the number of flexible employees was up by 6,500 year-to-year, giving the company a worldwide total of 114,900 employees. Campbell said the company’s plan is to move many of those flexible employees to full-time status.

Employment in the United States was 49,700 as of Sept. 30, with employment outside the U.S. at 65,200, the company said.

Normally Caterpillar would use its third quarter financial report to issue a preliminary outlook for the next year, in this case for 2018. But it did not do so this time and Campbell said that’s because the company has been focused on operating performance for the first nine months of 2017.

“We are putting together our growth strategies for 2018. We will revisit 2018 in January,” she said.

Caterpillar had $90 million in restructuring costs in the third quarter, which includes costs incurred by the employee reductions, and through three quarters those costs topped $1 billion. The company expects restructuring costs to be about $1.3 billion for the year.

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).