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Despite some commodity price spillover, Caterpillar lowers 2016 midpoint outlook

Despite some commodity price spillover, Caterpillar lowers 2016 midpoint outlook

Photo by Duane Daws

22nd April 2016

By: Henry Lazenby

Creamer Media Deputy Editor: North America

  

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TORONTO (miningweekly.com) – US earthmoving machinery manufacturer Caterpillar on Friday lowered the midpoint of the outlook for 2016 sales and revenues by about 2% on Friday, despite reporting some signs of improvement.

The profit outlook at the midpoint of the sales and revenues range was now $3 a share, or $3.70 a share excluding restructuring costs, down from $3.50 a share, or $4 a share excluding restructuring costs, at the midpoint of the previous outlook. Caterpillar advised that the expected decline in sales and revenues and an increase in expected restructuring costs were the main reasons for the decline in profit outlook.

Construction equipment sales in China and better order activity than expected at German trade fair bauma were among a few positive signals in other parts of its business that remained challenged. 

The 90-year-old company reported a first-quarter profit, excluding restructuring costs, of $0.67 a share, compared with $2.07 a share in the first three months of 2015.

Sales declined across the company with substantial reductions in construction, oil and gas, mining and rail. 

Sales and revenues for the first quarter were down 25% year-on-year to $9.5-billion, which was down $3.2-billion from the comparable quarter of 2015. Net earnings were $0.46 a share, down from a profit of $2.03 a share in the first quarter of 2015.

“While many of the industries we serve are challenged, we remain focused on what we can control: the quality of our products, our market position, safety in our facilities and continued restructuring and cost reduction. In fact, our period costs and variable manufacturing costs in the quarter were nearly $500-million lower than the first quarter of 2015,” stated Caterpillar chairperson and CEO Doug Oberhelman.

Further, the company’s decision to end production of on-highway vocational trucks had caused its planned restructuring costs to balloon by $150-million to $550-million for 2016.

Caterpillar had closed plants and reduced its workforce in a restructuring announced last year as it coped with global weakness in construction and mining, soft commodity prices and slowed demand for heavy machinery.

R&D INVESTMENT
Meanwhile, Caterpillar reported that it was making investments in research and development to drive forward its ‘lean journey’. It was also accelerating the company’s digital strategy – a long-term investment within Caterpillar and with its digital partners.

The company said it was working hard to develop the data architecture and applications that would make its products smarter and help its customers improve productivity and safety. 

“Our goal is to help customers be more productive, to better manage their fleets and to make more money with Caterpillar than they could with our competitors,” said Oberhelman. According to the company, its current fleet of about 400 000 (and growing) connected assets meant that entire fleets and job sites – from machines to tablets to drones – would eventually share data on one common technology platform in the age of “smart iron”. 

Meanwhile, Caterpillar’s financing arm Cat Financial also reported a 25% drop in after-tax profit at $100-million, while revenues fell 7% year-on-year to $643-million.

Edited by Samantha Herbst
Creamer Media Deputy Editor

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