Caterpillar Cuts Forecasts as Commodity Rally Questioned

  • Earnings will be $3.70 a share, down from previous $4 forecast
  • Revenue will be $40 billion to $42 billion this year, it says

Caterpillar Sites Commodities in Cutting Forecast

Caterpillar Inc., the best-performing major industrial stock this year, lowered its profit and sales forecasts as a three-month-old commodities rally risks running out of steam.

“Commodity prices improved from their recent lows, but excess supply remains,” the largest manufacturer of mining and construction equipment said in a statement Friday. “It is not clear at this time that the current prices are either sustainable or sufficient to drive increased demand for equipment. ”

Caterpillar Chief Executive Officer Doug Oberhelman is shutting factories and cutting 10,000 workers through 2018 in response to a global mining and energy rout. With commodity indexes slumping in January to all-time lows, customers from Australia to Brazil have trimmed costs to remain profitable, denting machinery orders. While commodity markets are rebounding as supply overhangs start to subside, demand for the company’s signature yellow excavators and trucks has yet to revive.

Commodity producers, who use Caterpillar machinery to dig up and transport materials as well as power their equipment, have slashed capital spending. Metal-mining companies are expected to cut capital purchases by 31 percent this year to $33.3 billion globally, according to data compiled by Bloomberg Intelligence. Last month, BHP Billiton Ltd., the world’s biggest mining company, announced that it would cut spending at a Canadian potash mine.

Revenue will be $40 billion to $42 billion this year, the company said Friday. In January, Caterpillar forecast full-year earnings of $4 a share and $40 billion to $44 billion of revenue. Per-share earnings will be $3.70, down from a previous forecast of $4.

Caterpillar’s pricing on equipment sales fell for the third straight quarter, raising concern for investors because further declines would imperil Caterpillar’s profitability even if the company delivers on cost-cutting promises and the market improves as forecast, said Stephen Volkmann, a New York-based analyst at Jefferies Group LLC.

“They continue to do better on the cost side, but everything has to go right to hit this number,” Volkmann said in an interview Friday.

Profit excluding one-time items in the first quarter was 67 cents a share, missing the 68-cent average of 14 analysts’ estimates compiled by Bloomberg.

Top Performer

Peoria, Illinois-based Caterpillar’s shares surged 16 percent this year through Thursday along with a rally in commodity producers, making it the best performer in the Dow Jones Industrial Average. Caterpillar fell 1 percent to $77.89 at 9:33 a.m. in New York.

In March, the company issued the first quarterly earnings guidance in its history, announcing that it will report 65 cents to 70 cents per share of profit in the first quarter, without changing its full-year outlook.

The Bloomberg Commodity Index has rallied about 15 percent from an all-time low reached in January that came after slowing growth in China and ample production left supply gluts from corn to crude oil.

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