Sales of Caterpillar construction equipment were down 27% in the first quarter, contributing to a 41% drop in profits for the segment, according to a release from the company.
Despite ongoing challenges caused by the Covid-19 pandemic, Caterpillar Inc. has taken steps to improve its liquidity and has returned approximately US$1.6 billion to shareholders.
The company announced total first-quarter 2020 sales and revenues dropped 21% from the same period last year, from US$13.5 billion to US$10.6 billion.
The decline was reportedly due to lower sales volume driven by lower end-user demand and the impact from changes in dealer inventories. Dealers increased machine and engine inventories about US$100 million during the first quarter of 2020, compared with about US$1.3 billion during the first quarter of 2019.
Total sales of construction equipment were reported to be US$4.306 billion in the first quarter of 2020, a decrease of US$1.567 billion, compared with US$5.873 billion in the first quarter of 2019.
Construction Industries’ profit was US$640 million in the first quarter, a fall of US$445 million compared with US$1.085 billion in the first quarter of 2019. The decrease was mainly due to lower sales volume, partially offset by lower manufacturing costs.
Caterpillar reported financial results for the remainder of 2020 will be impacted by continued global economic uncertainty. As such, it withdrew its earnings guidance on 26 March and is not currently providing a financial outlook for 2020.
“We have taken decisive actions to enhance our strong financial position, while continuing to execute our strategy for profitable growth,” said Caterpillar Chairman and CEO Jim Umpleby. “Caterpillar has faced and overcome many challenges in our 95-year history. Our goal is to emerge from the pandemic an even stronger company.”
Many governments classified Caterpillar’s operations as an essential activity for support of critical infrastructure. Caterpillar has suspended operations temporarily at certain facilities during the last several weeks due to supply chain issues, weak customer demand or government regulations.
As of mid-April 2020, globally and across the three primary segments, approximately 75% of the company’s primary production facilities continue to operate. Some facilities that were temporarily closed have reopened. The company will continue to monitor the situation and may suspend operations temporarily at additional facilities if warranted by business conditions.
The company has taken actions to reduce costs, including reducing discretionary expenses and suspending 2020 base salary increases and short-term incentive compensation plans for many employees and all senior executives. Caterpillar is prioritising spending to allow continued investment in services and expanded offerings, key elements of its strategy for profitable growth introduced in 2017.
First-quarter 2020 profit per share was US$1.98, compared with US$3.25 profit per share in the first quarter of 2019. Profit per share in the first quarter of 2020 included a pre-tax remeasurement gain of US$254 million, or US$0.38 per share, resulting from the settlement of a non-U.S. pension obligation.
Profit per share in the first quarter of 2019 included a discrete tax benefit related to U.S. tax reform of US$178 million, or US$0.31 per share. The first quarter of 2020 also benefited from the lack of short-term incentive compensation expense partially offset by the higher estimated annual tax rate of 31% excluding discrete items.
Operating profit margin was 13.2% for the first quarter of 2020, compared with 16.4% for the first quarter of 2019.
During the first quarter of 2020, enterprise operating cash flow was US$1.130 billion.
On a consolidated basis, Caterpillar ended the first quarter with US$7.1 billion of cash and available global credit facilities of US$10.5 billion. In April, Caterpillar raised US$2.0 billion of incremental cash by issuing new 10- and 30-year bonds and arranged US$8.0 billion of additional back-up facilities to supplement the company’s liquidity position.
“I am proud of our employees and dealers for their dedication to our customers, their communities and each other,” said Umpleby. “Our employees deliver products and services that enable our customers to provide critical infrastructure essential to support society during the Covid-19 pandemic.”