Manufacturers Hit a Wall as Coronavirus Saps Demand
April 28 2020 - 11:59AM
Dow Jones News
By Austen Hufford and Bob Tita
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 revenue fell by a fifth in
the first quarter from a year earlier. Harley-Davidson Inc. said
retail sales of its motorcycles slumped around the world in the
quarter. 3M Co. said it would furlough workers and idle some
factory lines outside 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 1.8% to $117.31,
while shares in 3M climbed 3.7% to $159.34 and shares in Harley
rose 11% to $20.90.
But executives offered a dark outlook for a sector that was
already faltering before the coronavirus crisis sucked demand out
of the economy 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 it
was reconsidering when to introduce some new models it is counting
on to draw new customers as a result of the worsening economic
outlook. 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
earlier 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.
3M, which makes a range of products, said adjusted sales in the
Americas region fell 20% in April 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 the first quarter last year.
Caterpillar reported a first-quarter profit of $1.09 billion
compared with $1.88 billion in the same quarter a year earlier.
Caterpillar 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 its 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 28, 2020 11:44 ET (15:44 GMT)
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