Caterpillar Earnings Meet Lowered Expectations, Guidance Drops Again

Caterpillar Inc. (NYSE: CAT) reported first-quarter 2016 results before markets opened Friday. The heavy equipment firm posted adjusted diluted earnings per share (EPS) of $0.67 on revenues of $9.5 billion. In the same period a year ago, the company reported adjusted EPS of $2.07 on revenues of $12.7 billion. First-quarter also results compare to the Thomson Reuters consensus estimates for EPS of $0.68 and $9.39 billion in revenues. The company’s adjusted EPS excluded 2016 first quarter restructuring charges of $0.21 a share.

The company had revised its guidance in mid-March, and the results came in at the high end of the new guidance. Caterpillar also changed its accounting method for pension and other post-employment benefits and recalculated its 2015 results using the new method. Adjusted EPS for the first quarter of 2015 rose from $1.86 to $2.07 under the new method and adjusted EPS for the full year rose from $4.64 to $5.47.

In its outlook for the year, Caterpillar said it sees some improvement in sales of construction equipment in China. While it sees some improvement, “other parts of the business remain challenged.” As a result, the company has lowered its revenue outlook from a prior range of $40 billion to $44 billion to a new range of $40 billion to $42 billion.

Caterpillar’s previous profit outlook called for 2016 adjusted EPS of $3.50 to $4.00 a share. The company has cut that to a new range of $3.00 to $3.70. The cut is based on the lower revenue outlook and an increase in expected restructuring costs from $150 million to $550 million in 2016. Higher restructuring costs are due to the closure of Cat’s on-highway vocational truck business.
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Analysts have second-quarter estimates for $1.05 in EPS and $10.59 billion in revenues. For the full year, the consensus calls for $3.59 in earnings per share and $40.61 billion in revenues.

CEO Doug Oberhelman said:

While first-quarter results were about as we expected, sales and profit were well below the first quarter of 2015.  Sales declined across the company with substantial reductions in construction, oil and gas, mining and rail.  While many of the industries we serve are challenged, we remain focused on what we can control: the quality of our products, our market position, safety in our facilities and continued restructuring and cost reduction.  In fact, our period costs and variable manufacturing costs in the quarter were nearly $500 million lower than the first quarter of 2015

Caterpillar did not repurchase any shares in the first quarter but did pay its $0.77 quarterly dividend. The dividend yield on the stock is currently 3.83%.

Caterpillar’s shares traded down about 1.4% in premarket trading, at $77.56 in a 52-week range of $56.36 to $89.62. Thomson Reuters had a consensus analyst price target of $63.44 ahead of the earnings report.