By James R. Hagerty
Caterpillar Inc. nudged its earnings forecast higher for 2015
but still expects to fall well short of last year's level amid
falling sales of equipment related to oil and gas exploration and
continued weakness in mining.
Rivals in Europe and Japan, whose weaker currencies give them
cost advantages, are stepping up price competition, Mike DeWalt, a
Caterpillar vice president, said in a conference call with
analysts. "It's just a tough business now," he said. "It's dog eat
dog."
The Peoria, Ill.-based maker of construction and mining
equipment said it expects earnings per share of about $4.70 for the
full year, down from $5.88 in 2014. Previously, Caterpillar
forecast earnings of $4.60 per share in 2015.
Profit in the first quarter grew 20% from a year earlier, partly
due to "very good cost control," Mr. DeWalt said.
Caterpillar maintained its earlier forecast that sales for the
full year will total about $50 billion, down 9% from 2014. That
reflects weaker markets for engines used in oil drilling as well as
for construction equipment in China and railroad locomotives in the
U.S.
Caterpillar's order backlog at the end of the first quarter was
down nearly 15% from a year earlier. Meanwhile, overdue amounts
payable by customers of the financing unit grew to 3.08% of the
portfolio from 2.44% a year earlier.
China's slowing economy is a worry, executives said, but they
hope for improvement in Europe as a weaker euro spurs exports,
cheaper oil reduces costs and low interest rates encourage
spending. "I think we're in the early stages of what will be a
recovery" in Europe, said Caterpillar Chief Executive Doug
Oberhelman. "I don't think it will be a boom."
The company faces a persistent slump in mining equipment,
sluggishness in construction machinery in much of the world and a
more recent slowdown in its most profitable business, engines used
for such things as generating electricity, pushing gas through
pipelines, running industrial machines and powering trains and
ships.
Despite those pressures, Andy Kaplowitz, an analyst at Barclays
Bank, urged Caterpillar to stick with its program of repurchasing
shares to support the stock price. Caterpillar said it bought back
$400 million of stock in the first quarter and expects to continue
repurchases at about that quarterly rate this year, though it said
priorities "can change based on business and market
conditions."
Mr. Kaplowitz also said Caterpillar probably needs to be more
aggressive about scaling back production capacity, especially in
mining. Caterpillar has manufacturing capacity for annual sales of
$80 billion to $100 billion, but sales now are running at around
$50 billion a year, the analyst said.
Brad Halverson, Caterpillar's chief financial officer, said the
company had closed or shrunk 20 facilities since 2013 and shed
15,000 jobs. Still, he said, Caterpillar needs enough capacity "to
be ready for the upturn."
Mr. Kaplowitz said the company may be overestimating its needs:
"The world is going to come back but maybe not in as big a way as
Caterpillar believes."
Stephen Volkmann, an analyst at Jefferies Group, said
Caterpillar had "done a pretty good job" controlling costs and
funneling cash to shareholders. He said the company seemed an
unlikely target for activist investors seeking major changes and
had no unrelated businesses to shed. "There's nothing obvious to
spin (off) or sell," Mr. Volkmann said.
Profit in the first quarter rose to $1.11 billion from $922
million a year earlier. Earnings per share increased to $1.81 from
$1.44. Analysts had forecast earnings of $1.35 for the latest
quarter.
Caterpillar earnings benefited by 14 cents a share from the sale
of the company's remaining stake in a logistics business.
Sales slipped 4% to $12.7 billion.
Write to James R. Hagerty at bob.hagerty@wsj.com
Corrections & Amplifications
Caterpillar Inc. reported a profit of $922 million a year ago.
An earlier version of this story misstated the figure as
billions.
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