Caterpillar Sees First-Quarter Sales, Profit Below Estimates

  • Company said it's `comfortable' with full-year earnings target
  • China's slowdown has hit Caterpillar's mining customers

Caterpillar Inc. gave its first quarterly earnings forecast in 90 years in a sign analysts are grappling with how much crude’s collapse is squeezing the machinery supplier.

Caterpillar made its forecast explicit on Thursday after what the Peoria, Illinois-based company called weeks of unheeded suggestions that analysts’ estimates were too high. Profit will fall to 65 cents to 70 cents per share, according to a regulatory filing, short of the 95-cent average of analysts’ estimates compiled by Bloomberg. Sales will fall to $9.3 billion to $9.4 billion, compared with the $10.2 billion projected by analysts.

“Energy is the one part that continues to deteriorate,” Joel Tiss, an analyst at BMO Capital Markets Corp., said in a phone interview. “People still don’t know all the linkages between construction and energy.”

Caterpillar’s sales of motors that power oil and gas rigs, which were resilient through the first years of a mining downturn, have now dropped, and backlogs are diminishing as drillers slash capital budgets. With commodity prices slumping in January to the lowest in almost seven years, miners from Australia to Brazil have trimmed costs to try to remain profitable. Caterpillar, famous for its signature yellow machines, has responded by reducing its own operating expenses.

North American independent energy exploration and production companies will cut capital spending by 49 percent this year from 2015, according to Bloomberg Intelligence.

First Forecast

Caterpillar offered its first quarterly earnings forecast in the company’s history, Mike DeWalt, the company’s vice president of finance services, said in a presentation on Thursday. The company said it “remained comfortable” with its full-year guidance for 2016 sales and profit. Earnings this year will be $4 a share, excluding one-time items, compared with $4.64 in 2015, the manufacturer said in January.

“We’ve been somewhat subtle in trying to set expectations around the first quarter,” DeWalt said. “But we have been unable to get consensus moved and so you’re going to see something the first time we’ve ever done in our entire history, and we’re going to do that, a first quarter estimate.”

Analysts won’t be surprised if Caterpillar issues further cuts to its forecasts, Karen Ubelhart, a New York-based analyst at Bloomberg Intelligence said in an interview.

“They said they’d make it up in the second half, but where?” Ubelhart said. “Nothing’s good. People are worried this is just the first of several cuts.”

In January, Caterpillar said sales in resource industries would decline 15 to 20 percent this year, and in construction by 5 to 10 percent as weakness in developing countries and oil-producing regions offset relatively stable U.S. economic growth.

The company’s shares have risen 12 percent this year amid cost cutting at the equipment maker and signs of recovery in metals prices and among its mining customers.

The pared-down outlook on Thursday comes after Caterpillar reported better-than-estimated fourth-quarter earnings, as cutbacks helped mute the effects of the commodities meltdown. Shares jumped when the results were announced in late January, as a 15 percent decline in operating costs suggested that the manufacturer was having some success in damping the effect of declining demand in the mining industry.

Shares climbed 2.1 percent to $75.90 in New York. Mining and energy companies advanced along with the Standard & Poor’s 500 Index after the Federal Reserve scaled back expectations for the path of U.S. interest-rate increases.

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