Caterpillar sees end of good times, moves into cost-cutting mode

24 Jul 2015 | Author: | No comments yet »

Caterpillar Resists Calls to Slash Spending.

The maker of construction and mining equipment on Thursday cut its full-year sales outlook to about $49 billion from the $50 billion estimate it first provided in January, and reiterated in April.

Peoria, Ill. • Caterpillar Inc. reported second-quarter profit Thursday of $710 million, or $1.16 per share, which went up to $1.27 per share when adjusted for restructuring costs. CAT -3.61 % is resisting suggestions from some Wall Street analysts that it should slash much more deeply into production capacity as demand for construction, mining and oil equipment continues to slump. It said demand for mining equipment remains “severely depressed” and sales of equipment used in construction and oil exploration have also begun falling. And if it’s all about the dollar, why didn’t Caterpillar cut the outlook in April, when it reported first-quarter results, since the dollar soared during the quarter to a reach a more-than-decade high? However, Caterpillar left its profit forecast for the full year unchanged and said the cost cuts already made have allowed it to keep its balance sheet strong enough to buy back more shares and raise dividends.

With Caterpillar sales running at about 25% below the level of three years ago, analysts asked Chief Executive Doug Oberhelman during a conference call if he thought deeper cost cuts were needed. “We are constantly monitoring the market,” he said, promising to slash spending if the global economy gets much worse. Dollar Index DXY, +0.07% which tracks a basket of currencies of major U.S. trade partners, fell 3% during the second quarter, after running up nearly 9% during the first quarter. Caterpillar over the past two years has shut some of its smaller U.S. plants making mining equipment and is slashing the workforce at a large plant in Gosselies, Belgium. Maybe Caterpillar could also praise the strong dollar, as one of the reasons the company’s 2015 adjusted profit outlook remained intact at $5 a share, despite lower sales. “Although the stronger U.S. dollar had a negative impact to our sales, our sizable manufacturing presence outside of the United States resulted in a favorable impact to operating profit,” the company stated in its earnings release. And perhaps Caterpillar’s lowered sales outlook has something to with what can be scarier to investors than a rising dollar—like a slowing global economy.

Caterpillar said it now expects 2015 world gross domestic product growth of 2.5%, down from its previous forecast of 2.7% growth, and about the same as in 2014. The company also changed how it characterized expectations for growth in developed countries, to “improve slightly” from just “improvement” in April.

Its growth outlook for developing countries was downgraded to “a rate moderately below their growth rate in 2014” from “a rate slightly below” the 2014 rate. Now, Caterpillar said, mining companies continue to reduce spending on equipment, maintenance and even spare parts. “Our (mining) trucks and ancillary equipment are being used longer and longer and longer,” Mr.

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