Caterpillar Second-Quarter 2014 Profit Rises Despite Lower Sales

2014 sales outlook lowered slightly, but expectations for annual profit per share improved

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Caterpillar Inc. (NYSE: CAT) announced profit per share of $1.57 for the second quarter of 2014, an 8% increase compared to the second quarter of 2013, despite revenues slipping 3% to $14.150 billion.

Caterpillar Reports Higher Second-Quarter 2014 Profits

“We’re pleased with our second-quarter results, particularly the improvement in profit.  We increased the bottom line despite a weak quarter for our Resource Industries segment, which is principally mining,” said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman. “Three key things are contributing to the continuing strength of our financial results—the diversity of our businesses, substantial success in operational improvements through the execution of our strategy and the strength of our cash flow and balance sheet.

“Our Construction Industries and Energy & Transportation segments continue to improve,” added Oberhelman.  “Construction Industries had a good quarter with sales up 11% and operating profit up 83% from the second quarter of 2013.  The improvement in Construction Industries, along with sales stability and record profit from Energy & Transportation, has helped us improve profit despite the downturn in the mining industry.

“We understand that we don’t control the economy or the timing of a turnaround in mining.  That’s why we’ve been so focused on executing our strategy and improving our operational performance, which have helped us control costs with year-to-date manufacturing costs and SG&A and R&D expenses improving nearly $500 million.  We’ve also improved our balance sheet and cash flow over the past few years, and that’s contributed to our ability to return value to our stockholders—including today’s announcement that we intend to repurchase $2.5 billion of Caterpillar stock in the third quarter.”

2014 Outlook

The outlook for 2014 sales and revenues has been reasonably consistent with the preliminary outlook Caterpillar provided with its third-quarter 2013 financial release.  With half of 2014 complete, the company has tightened its target range for the year.  The updated outlook for 2014 sales and revenues is $54 to $56 billion (previous outlooks had been in the $53.2 to $58.8 billion range).  The mid-point of the outlook is slightly lower, with most of the change coming from weaker Construction-Industries sales in China, the CIS and in the Africa/Middle East region.

Despite a slightly lower mid-point of the sales and revenues outlook the company is increasing its 2014 profit per share outlook.  To provide a better understanding of the company’s expectations for 2014 profit, the profit outlook is being provided with and without anticipated restructuring costs.  The expectation for restructuring costs in 2014 is now about $400 million—the bottom end of the $400 to $500 million range that was previously expected.  With sales and revenues at $55 billion, the mid-point of the outlook range, the revised profit outlook for 2014 including restructuring costs of about $400 million is $5.75 per share, an improvement from the previous outlook of $5.55 per share.  Excluding restructuring costs, the profit outlook is $6.20 per share, an increase from the previous outlook of $6.10 per share.

“After a sizable drop in sales and revenues in 2013, our ongoing forecasting process has, since the third quarter of last year, pegged 2014 as a roughly flat year for sales; that’s still the case,” Oberhelman said.  “There have been plusses and minuses, but they’ve both been relatively muted in the context of our total sales and revenues.  While we’d certainly like to see improvement in economies around the world, and more specifically, the mining industry, the stability that we’ve seen this year has helped.  Even though sales and revenues are relatively flat compared to last year, we’ve improved the bottom line with better execution and continued focus on costs.”