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 The news sent shares in the world's largest maker of earth-moving
machinery up as much as 4 percent though the stock, which has
outperformed the S&P 500 so far this year, gave back more than half
those gains by early afternoon.
The results were also lifted by continued cost cuts as well as share
repurchases. Caterpillar has laid off 8,295 full-time employees, or
nearly 7 percent of its global workforce, over the last 12 months.
It has also repurchased $3.7 billion of its shares since January
2013, which translates into a higher profit-per-share on the lower
outstanding share count.
The company's success in managing costs, and translating sales gains
into profits, was evident its construction equipment segment, where
operating profit rose $460 million in the first quarter on a sales
increase of just $840 million.
Caterpillar expects its sales to builders to increase 10 percent
from 2013, up from a previously forecast increase of about 5
percent.
But it cautioned 2014 would be "another very tough year" for mining,
another key market, and that its outlook reflected an anticipated
drop of about 80 percent in sales of large mining trucks from the
company's peak year in 2012.
Adam Fleck, an analyst at Morningstar, said he was pleasantly
surprised by the company's "very solid cost control in construction
in particular," where operating margins continued to grow and "were
at their highest quarterly level in several quarters", even though
they were typically more compressed than in the mining equipment
category.
Fleck said the weakness in mining "wasn't terribly surprising" and
added that because the once-critical business made up just 17
percent of first-quarter sales and 12 percent of operating profit,
any continued weakness in the sector was "more of a headline risk
than a true economic one."
Caterpillar posted a first-quarter net profit of $922 million, or
$1.61 a share, compared with $880 million, or $1.32 a share, a year
earlier.
With restructuring costs factored in, Caterpillar made a profit of
$1.44 a share.
Revenue at the company, which also makes locomotives and diesel and
turbine engines, was little changed at $13.24 billion.
Analysts on average expected a profit of $1.24 a share on sales of
$13.15 billion, according to Thomson Reuters I/B/E/S.
In an interview with Reuters, Brad Halverson, the company's chief
finance officer, said: "We're very happy with the quarter, with
profit being up — fairly significantly excluding restructuring — on
flat sales. We're also very happy with how we did that: a little
price, some market share improvement and good cost reduction."
Price increases played a minimal role in the first-quarter results,
Halverson said. He said Caterpillar's arch-rival Komatsu Ltd was
"being a little bit more aggressive in their pricing structure"
thanks to the weakness of the Japanese yen. That, coupled with
continued uncertainty in Europe and signs of a construction slowdown
in China, kept a lid on prices.
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"If you go back to '07 or '08, we had pretty healthy price increases
in our profitability," Halverson said. "But I would say that in the
current environment, the ability to have decent-sized price
increases is difficult." The report was nonetheless tinged with
caution. Chief Executive Officer Doug Oberhelman said the Peoria,
Illinois-based company was watching several regions closely. Having
visited China recently, he said the construction industry there was
facing challenges.
Caterpillar was also concerned about the situation in Ukraine and
Russia, he added.
"We are hoping for a peaceful resolution, but business confidence
around the world could dampen, and trade and world GDP could slow
should the situation deteriorate," Oberhelman said. "The global
economy remains fragile, and as such, one or two setbacks could
create substantial downside risk for the global economic recovery."
FULL YEAR EARNINGS OUTLOOK UP
Caterpillar raised its full-year earnings outlook to $6.10 per share
from $5.85, citing growing demand from builders. Oberhelman warned,
however, of "a range of macro-economic and geopolitical
uncertainties that could slow the growth of global GDP" and upend
Caterpillar's new forecast.
The company kept its forecast for full-year revenue unchanged at
about $56 billion, plus or minus 5 percent, and said it would
continue to work to restructure its operations to cut costs. It said
those efforts would be "widespread across the company" throughout
2014 and would cost the company between $400 to $500 million and
negatively impact full-year earnings by 50 to 60 cents a share.
In the first quarter, the company spent $149 million on
restructuring efforts, Caterpillar said, primarily related to a
reduction in workforce at plant in Belgium.
In early afternoon trading, Caterpillar shares were up $1.70, or 1.6
percent, at $105.08 after earlier trading as high as $107.40. So far this year,
Caterpillar shares have risen nearly 14 percent while the S&P 500 is up less
than 2 percent. (Reporting by James B. Kelleher
in Detroit; editing by Jeffrey Benkoe, Lisa Von Ahn and Meredith
Mazzilli)
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