Caterpillar Pares Outlook -- WSJ
April 23 2016 - 3:03AM
Dow Jones News
Improving machinery sales in China don't make up for sluggish
commodity markets
By Bob Tita
Caterpillar Inc. said on Friday that sales of its construction
machinery in China are starting to improve, though still-sluggish
global commodity markets forced the company to cut its full-year
profit and revenue forecasts.
The world's largest heavy-equipment maker and rivals
aggressively expanded production in China after the 2008 recession
on a wave of government-directed construction of highways,
airports, power plants and skyscrapers, only for spending to dry up
in 2012.
Caterpillar Chief Executive Doug Oberhelman, who visited China
last month, said modest government stimulus spending on
infrastructure projects had lifted the company's spring equipment
shipments there for the first time in at least three years.
Equipment demand also is rising ahead of China's new emissions
standards for engines that are expected cause higher prices for
machinery.
"I'm very cautious about how far [the demand] goes," said Mr.
Oberhelman on an investor call. "We're going to have to watch this
month by month."
He said orders at a big annual trade show in Germany last month
were above expectations, and added that feedback from European
clients was much more positive than in recent years.
Caterpillar is facing the fourth straight year of falling sales
of its trademark yellow bulldozers, excavators, mining trucks and
engines. The company is trimming thousands of jobs to cut
costs.
And executives cautioned against interpreting some of the
brighter market signals as evidence of a sustained recovery in the
global equipment market for construction and mining.
Business conditions remain challenging in most of Caterpillar's
markets. The rising volume of commercial and residential
construction in the U.S. typically drive higher demand for
construction machinery, but Caterpillar's North American sales in
the sector fell 18% from a year ago, weighed down by a glut of used
machinery pulled from idle frack oil and natural gas fields.
The recent uptick in commodity prices also hasn't spurred its
mining equipment business, with sales down 26% in the quarter. The
energy slowdown and overcapacity in the U.S. rail industry pushed
its engine sales down by a third.
Caterpillar expects prices for its equipment to fall about 1%
this year, double its previous forecast. With rivals such as Volvo
AB and Komatsu Ltd. struggling against excess inventories and weak
demand as well, Caterpillar said it won't risk losing market share
to rivals.
The company reported a profit of $271 million for the quarter
ended March. 31, compared with $1.25 billion a year earlier. Sales
fell 26% to $9.5 billion.
Caterpillar expects sales this year of $40 billion to $42
billion after chopping $2 billion from the top end of its forecast.
Caterpillar expects per-share profit this year of $3.00, or $3.70
excluding restructuring costs, down from its previous outlook of
$3.50 excluding restructuring expenses.
Its stock price, which has rallied by a third from its January
low, closed Friday at $78.32 a share, down 34 cents, or 0.4%, from
a day earlier.
Corrections & Amplifications: An earlier version of this
article incorrectly stated the ending date for Caterpillar's latest
reporting quarter. The correct date is March 31. (April 22)
Write to Bob Tita at robert.tita@wsj.com
(END) Dow Jones Newswires
April 23, 2016 02:48 ET (06:48 GMT)
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