By Andrew Tangel
Caterpillar Inc. is gaining steam after years of sluggish demand
for its giant yellow trucks and heavy machinery, as some markets
hobbled by a yearslong commodity slump begin to turn around.
The equipment giant reported its first quarterly sales increase
since 2015 for the period ended March 31, and boosted its outlook
for this year on signs of recovery in some long-struggling
construction and mining markets.
"It's a start of a recovery," Chief Financial Officer Brad
Halverson said in an interview. "We're feeling positive about
things -- much better than we felt a year ago for sure."
The results mark an unexpected victory for Chief Executive Jim
Umpleby, who since taking over on Jan. 1 has pushed ahead with cuts
to Caterpillar's workforce and manufacturing footprint and dealt
with a raid by federal agents at the company's headquarters in
Peoria, Ill.
Caterpillar said it expects to take in up to $41 billion in
revenue this year; its previous projection topped out at $39
billion. Caterpillar reported $38.5 billion in revenue in 2016, its
fourth straight year of declining sales.
On Monday, Caterpillar reported a measure of retail sales of its
machines world-wide had increased for the first time since November
2012. Caterpillar shares rose 7.9% Tuesday to close at $104.42, the
highest level since November 2014.
Rising commodity prices and mining activity in much of the world
outside the Americas helped drive a 15% revenue increase for
Caterpillar's resource-industries segment in the first quarter,
thanks largely to aftermarket parts sales. Revenue in Caterpillar's
construction segment also increased 1% the first quarter, boosted
by sales in Asia-Pacific and Latin America. The company said strong
demand in China for public works and housing projects was in large
part responsible for that bump.
Caterpillar was sent reeling in recent years as commodity prices
slumped and global mining activity slowed. The downturn consumed
the final years of Doug Oberhelman's tenure as chairman and CEO
before he retired at the end of March.
Caterpillar executives said Tuesday that many of their main
markets remain depressed. Its construction-equipment sales remain
weak in many markets outside of the Asia-Pacific region. Economic
turmoil in Brazil has weighed on business there, and Middle Eastern
economies remain hobbled by low oil prices.
"There continues to be uncertainty across the globe, potential
for volatility in commodity prices, and weakness in key markets,"
Mr. Umpleby said. He called his first quarter as chief executive
"eventful."Despite positive signals abroad, Caterpillar reported a
7% decline in construction sales in North America.
Amy Campbell, director of investor relations, said it was "very
doable" for Caterpillar to double the number large mining trucks it
sells this year to about 140; but that would still be the
second-lowest number of those vehicles Caterpillar has sold in a
year.
Caterpillar cited a glut of used equipment on the market and
"weak infrastructure development." Executives have said that even
if President Donald Trump succeeds in his plan to inject $1
trillion into public-works projects, the boost in infrastructure
spending might not translate into new business for Caterpillar
until next year.
Caterpillar's business in the U.S. in many ways reflects
activity in the broader domestic construction market.
But many used machines remain on the market in the U.S., and a
building spurt may not immediately translate into orders for new
machines. Japanese rival Komatsu Ltd. reports earnings this week.
Analysts will be looking for signs that its recent performance also
reflects evidence of pockets of improved activity globally and in
the U.S.
Caterpillar's restructuring costs are expected to jump to $1.25
billion this year, up from a previously projected $750 million, as
Caterpillar closes factories in Aurora, Ill., and Gosselies,
Belgium. Its workforce continues to shrink along with its global
manufacturing footprint. Caterpillar had 95,300 full-time employees
at the end of the first quarter, down from 101,400 a year earlier.
In a call with analysts, Mr. Umpleby offered no new insights into
the federal government's criminal investigation of the company's
tax strategy, one of its Swiss subsidiaries and export filings.
Mr. Halverson said the multiple rounds of cuts have "been really
hard on us and our employees," but he didn't rule out further
closures and said the company would pay close attention to
costs.
On March 2, agents from the U.S. Department of Commerce,
Internal Revenue Service and the Federal Deposit Insurance Corp.'s
inspector general raided Caterpillar's headquarters and two nearby
facilities. Executives have said the company was surprised by the
search warrant, noting Caterpillar's cooperation with the
investigation.
"If we find something that violates our values and our code of
conduct we will take appropriate action," Mr. Umpleby said. Mr.
Halverson, in the interview, declined to elaborate.
Overall, Caterpillar reported a profit of $192 million or 32
cents a share for the first quarter, compared with $271 million or
46 cents a share a year ago. Excluding restructuring costs, the
company said it earned $1.28 a share, compared with 64 cents a year
ago. Total sales and revenues rose to $9.82 billion from $9.46
billion a year ago.
Caterpillar expects earnings per-share this year to be $2.10
based on sales at the midpoint of projections, or $3.75 excluding
restructuring costs. Previously the company said it expected
per-share earnings of $2.30, or $2.90 excluding restructuring
costs.
--Joshua Jamerson contributed to this article.
Write to Andrew Tangel at Andrew.Tangel@wsj.com
(END) Dow Jones Newswires
April 26, 2017 02:47 ET (06:47 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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