Caterpillar Profit Tops Estimate as Cuts Mute Slump; Shares Rise

  • Commodity prices ‘appear to have stabilized’ at low levels
  • ‘Hopefully, this is the worst quarter we’ll see:’ DeWalt

Caterpillar Inc. reported better-than-expected earnings as a drive to cut costs countered the impact of lower demand, and said the worst of the slump in mining-equipment sales may be passing. Share rose the most since February.

Second-quarter profit fell to 93 cents a share from $1.31 a year earlier, Peoria, Illinois-based Caterpillar said in a statement Tuesday. Excluding one-time items, the company earned $1.09 a share, beating the 96-cent average of 17 analysts’ estimates. Sales in the quarter declined to $10.3 billion from $12.3 billion a year earlier.

Caterpillar Chief Executive Officer Doug Oberhelman has reorganized the company’s mining and energy segments, shutting down dozens of factories and eliminating thousands of jobs as a prolonged commodity slump eroded sales of engines, giant trucks and shovels. A years-long initiative to streamline its supply and distribution network has yielded results as the company’s gross margin has climbed annually since 2013, even as revenue has slumped.

“The combination of extra cost reduction and a few more sales hopefully will make the second quarter the worst of the year,” Mike DeWalt, Caterpillar’s vice president of finance services, said in a presentation to analysts on Tuesday when asked about mining profitability. “Embedded within our outlook we see it getting a little bit better.”

Shares rose 4.6 percent $82.33 at 3:07 p.m. in New York, the biggest intraday gain since Feb. 4. The stock has advanced 21 percent this year.

“Management is very cautious overall but at the same time expressed optimism that they can contain losses” in the mining segment, Matt Arnold, a St. Louis-based analyst at Edward Jones & Co., said by telephone. “Beyond that they had constructive things to say about construction in the U.S.”

Improving commodity prices, which entered a bull market in June, haven’t yet been enough to revive demand from miners and energy companies, which have been cutting costs to shore up profit after raw materials from copper to crude slid last year. Mili Pothiwala, an analyst at Morgan Stanley, sees miners reducing capital spending this year and next, which may delay any boost in orders. The U.K.’s referendum last month clouds the outlook for Europe.

Annual sales will be $40 billion to $40.5 billion, compared with its forecast in April of $40 billion to $42 billion. Earnings excluding restructuring costs will be about $3.55 a share, down from previous projection of $3.70. That brings the forecast in line with the average estimate of analysts tracked by Bloomberg.

Additional workforce reductions in the second half of the year will push up restructuring costs to about $700 million, from a previous forecast of $550 million, the company said Tuesday.

“They’re doing everything they can to cut costs, but their end-markets are weak,” Joel Tiss, an analyst at BMO Capital Markets Corp. in New York, said in a phone interview. “The downturn is worse than expected, and they’re just going to have to keep going and wait till it gets better.”

Before it's here, it's on the Bloomberg Terminal. LEARN MORE