Manufacturers Offer Dark Outlook -- WSJ
April 29 2020 - 3:02AM
Dow Jones News
Caterpillar, Harley, 3M among U.S. companies idling factories,
trying to preserve their cash
By Austen Hufford and Bob Tita
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 29, 2020).
Major U.S. manufacturers said some closed plants may never
reopen and new product introductions could be delayed, after the
coronavirus pandemic slashed demand for everything from motorcycles
to industrial paint.
Caterpillar Inc. said Tuesday that its first-quarter revenue
fell by a fifth, and Harley-Davidson Inc. said retail sales of its
motorcycles slumped around the world during the quarter.
3M Co. said it would furlough workers and idle some factory
lines apart from its booming N95 mask business, a sign of the broad
economic malaise affecting even companies with a hot product.
"The impact of Covid-19 on our business has been significantly
more severe and chaotic than any cyclical downturn we had
envisioned," Caterpillar CEO Jim Umpleby said on a conference
call.
The hit to the companies' earnings was lighter than some
analysts expected. Shares in Caterpillar rose less than 1% to
$115.46, while shares in 3M climbed 2.6% to $157.61 and Harley's
rose 15% to $21.82.
But executives offered a dark outlook for a sector of the
economy that was already faltering before the coronavirus crisis
sapped demand and hobbled plants and supply chains. Caterpillar,
3M, Harley and other companies have suspended their financial
guidance for the year.
Big chunks of the U.S. industrial base remain closed as part of
the effort to contain the virus. Other factories are closed due to
declining demand or parts shortages. Caterpillar and 3M said a
quarter of their factories are offline. Harley, which idled
assembly plants in mid-March, said it is restarting some
production. The Milwaukee-based company also said, though, that the
worsening economic outlook has prompted it to reconsider when to
introduce some new models it is counting on to draw new customers.
Nearly two-thirds of its U.S. dealers remain closed.
"We have challenges to address that have become more apparent in
this crisis, including the high level of complexity across the
organization that needs to be minimized " Jochen Zeitz, Harley's
acting CEO, said on a call.
Some factories may not come back online. Caterpillar said it was
considering closing plants in Germany.
Manufacturers said the economic fallout from the pandemic has
followed the spread of the virus. Demand first dropped in China
early this year and then spread to Europe, mostly acutely in Italy,
executives said. Demand in the U.S. started to plummet in
mid-March. Manufacturing output in March fell 6.3% from the prior
month, according to the Federal Reserve, the biggest drop since the
end of World War II.
Minnesota-based 3M, which makes a range of products, said
adjusted April sales in the Americas region were down 20% from a
year earlier as factories suspended production, dentists cut back
on operations and office managers bought fewer supplies for
workforces now at home.
Caterpillar said it expects the current quarter to be the
weakest for the global economy. "With the general economic
uncertainty, we did see people defer buying machines," Caterpillar
finance chief Andrew Bonfield said in an interview.
Manufacturers said they were cutting back on investments this
year to save cash. 3M said it would cut capital spending this year
to about $1.3 billion; it had previously planned to spend up to
$1.8 billion. Paint maker PPG Industries Inc. said it would spend
up to $250 million on capital investments this year, down from $413
million in 2019.
"Never before have we experienced a crisis as broad as the
Covid-19 pandemic," PPG Chief Executive Michael McGarry said on a
call.
Harley said it would restrict spending and preserve cash,
including by suspending share buybacks and slashing its shareholder
dividend to 2 cents a share for the second quarter from 38 cents
for the first quarter.
Harley reported more than $1.09 billion in quarterly
motorcycle-related revenue, down from $1.19 billion a year earlier
though better than analysts expected. Profit fell to $69.7 million
from $127.9 million in last year's first quarter.
Caterpillar reported a first-quarter profit of $1.09 billion
compared with $1.88 billion a year earlier. The Illinois-based
company said its adjusted earnings were $1.60 a share. Analysts had
forecast adjusted earnings of $1.69 a share.
3M's revenue grew 2.7% to $8.08 billion in the first quarter,
while profit rose 45% to $1.29 billion. The company posted adjusted
earnings per share of $2.16, above the $2.03 expected by
analysts.
Write to Austen Hufford at austen.hufford@wsj.com and Bob Tita
at robert.tita@wsj.com
(END) Dow Jones Newswires
April 29, 2020 02:47 ET (06:47 GMT)
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