VANCOUVER (miningweekly.com) – US earthmoving and construction equipment manufacturer Caterpillar has reported flat year-on-year adjusted earnings for the December quarter, reflecting pressure in many of its end markets owing to weak economic conditions in several parts of the world.

The Peoria, Illinois-based company reported fourth-quarter adjusted profit of $0.83 a share, the same as the fourth quarter of 2015, but higher than the outlook provided in October. Wall Street analysts on average predicted earnings a share of $0.66.

For the full year, adjusted profit a share was $3.42, down from $5.35 a share in 2015. For the year, the impact on profit from lower sales and revenues was eased by a $2.3-billion reduction in period costs and variable manufacturing costs.

During the period, the company booked three large noncash charges and higher-than-expected restructuring costs.

The net loss amounted to $2 a share, compared with a loss of $0.16 a share in the fourth quarter of 2015. Sales and revenues for the three-month period were $9.6-billion, down from $11-billion in the comparable quarter of 2015.

Full-year sales and revenues were $38.5-billion, down about 18% from $47-billion in 2015. The company lost $0.11 a share in 2016, compared with a profit of $4.18 a share in 2015.

CAUTIOUS OPTIMISM
Caterpillar said it was seeing positive signs that could be early indications of a modest recovery in several of its businesses.

In the resource industries, recovering commodity prices, along with sequential improvements in parts sales in each of the last three quarters and improvements in quoting and order activity in the fourth quarter, suggest that mining-related sales may have bottomed.

In the construction sector, sales in China started recovering in 2016; sales in Europe seem to have stabilised and could improve in 2017; and sales in Brazil, which are off their peak by over 80%, could improve if the Brazilian economy begins to recover from recession, Caterpillar said.

It also expects gas compression equipment to remain strong, with a “solid backlog” for turbines. If oil prices rise modestly and stabilise, it would be positive for its businesses that support drilling and well servicing, it said.

Meanwhile, prospects for tax reform and an infrastructure spending Bill in the US were encouraging. “While these initiatives would likely be a ‘solid positive’ for many of our businesses, we would not expect to begin to see meaningful effects of these changes until sometime in 2018,” Caterpillar stated.

DOWNSIDE CONCERNS
Caterpillar advised that despite improving quoting interest in mining products, it is expecting miners’ capital spending to be flat in 2017 after several years of decline. Sales of some large construction equipment within the resource industries business segment are likely to decline in 2017, when compared with 2016.

The manufacturer warned that the most concerning regions are North America and the European/African/Middle Eastern region. While better economic growth and increased infrastructure spending may be on the horizon, the availability of used equipment has negatively impacted on sales in North America during 2016 and the company expects some negative impact in 2017.

“We expect sales in Africa/Middle East to be down again in 2017 due to overall economic weakness and continued pressure on economies that rely on oil revenues to drive economic growth. In addition, continuing uncertainty related to Brexit remains a concern in Europe,” Caterpillar said.

Caterpillar’s rail segment also remains challenged with low traffic volume and a significant number of idle locomotives. Weakness in shipbuilding is further expected to be negative for its marine-related sales; power generation sales are projected to remain weak; and industrial engine sales to original-equipment manufacturers are expected to be lower than 2016.

2017 GUIDANCE
Caterpillar expects the strengthening US dollar to weigh on sales and revenues in 2017, guiding for full-year sales and revenues to range between $36-billion and $39-billion, with a midpoint of $37.5-billion.

The company expects profit a share of about $2.30 at the midpoint of the sales and revenues outlook range. Excluding restructuring costs of about $500-million, it expects adjusted profit of about $2.90 a share at the midpoint, which reflects reduced operating profit pull through of about 30% from 2016.

“We continue to execute in a challenging economic environment and are focused on improving operating margins, profitability and shareholder returns. While we see signs of positive activity in some of our key end markets, the overall economic environment remains challenging,” Caterpillar CEO Jim Umpleby stated.

The stock fell more than 2% Thursday to as low as $96.02 apiece.