Exchange rates hit Cat results

Caterpillar has said that the stronger US Dollar has meant that sales in many countries were translating into fewer Dollars than it had originally forecast, while a challenging second half of the year is expected, with low oil prices a major factor.

In reporting its second quarter results, the company revealed its intention to repurchase $ 1.5 billion (€ 1.37 billion) of common stock in the third quarter of 2015.

Sales and revenues for the second quarter of this year were put at $ 12.3 billion (€ 11.22 billion), 13% down on the $ 14.2 billion (€ 12.96 billion) reported for the second quarter of 2014. It claimed, however, a strong ME&T (machinery, energy and transportation) operating cash flow of $ 1.6 billion (€ 1.46 billion) for the quarter.

Chairman and CEO Doug Oberhelman said, “Our Caterpillar team continues its track record of solid operational performance in the face of difficult conditions in several of the key industries we serve.

“Because we serve cyclical industries, we focus intently on operational execution and cost control. This is particularly important when sales decline – our goal when sales decline is to manage costs so the decline in operating profit is less than 30% of the decline in sales and revenues.”

He said the company had done “much better than that” in the second quarter, explaining that this had been achieved by closely watching costs, the restructuring over the past two years, and “the work done by Caterpillar employees across the world who are proving we can excel in this challenging economic environment”.

He said, “Our focus during these challenging times is on operational execution and customer success through efforts like Lean Management and our Across the Table initiative with dealers, while also investing in tomorrow through new technologies, innovation and data analytics – both within Caterpillar, and by partnering with and investing in other companies.”

Caterpillar said the economic and industry conditions that had been expected at the beginning of the year were happening. It said world economic growth was as the company had expected, with severe weakness in mining continuing, construction-related sales in China and Brazil lower, and new orders for oil-related applications declining.

Outlook

While the 2015 outlook for profit per share was unchanged at $ 4.70 (€ 4.29), or $ 5.00 (€ 4.56) excluding restructuring costs, the outlook for 2015 sales and revenues was predicted to be about $ 49 billion (€ 44.70 billion) – about $ 1 billion (€ 912 million) down on the previous outlook.

Oberhelman said, “We originally set the $ 50 billion sales and revenues estimate in January, and our expectations haven’t changed much since then. However, currency impacts from a stronger US Dollar are causing sales in many countries to translate into fewer dollars than we initially expected.”

He said that while economic conditions in the US were modestly positive, the global economy remained relatively stagnant.

“Many of the key industries we serve remain weak, and we haven’t seen sustained signs of improvement,” he added.

“Continuing economic weakness in China and Brazil, as well as uncertainty in the Eurozone and over Greece, haven’t helped confidence. Prices for commodities like coal, iron ore and oil are not signalling an improvement in the short term.”

Caterpillar’s plan to repurchase approximately $ 1.5 billion of Caterpillar common stock during the third quarter is in addition to the approximately $ 500 million (€ 456.03 million) of stock that was repurchased in the first half of 2015, and $ 4.2 billion (€ 3.83 billion) repurchased in 2014.

Oberhelman said, “However, our stock repurchase plans are always subject to the company’s cash deployment priorities and can change based on business and market conditions.”

He added, “Repurchasing stock is one way we return capital to stockholders, and our healthy balance sheet and strong cash flow are helping us do that despite weakness in the cyclical industries we serve.”