Caterpillar Earnings Surpass Expectations
Caterpillar posted a stronger-than-expected quarterly profit on Monday as the world's largest mining and construction equipment company aggressively cut costs to offset continued sluggish sales of its earth-moving equipment.
The results and a better-than-expected preliminary profit forecast for 2014 sent Caterpillar (CAT) shares up nearly 7 percent in early electronic trading.
In a statement, Doug Oberhelman, the company's chairman and chief executive officer, said Caterpillar was beginning to see "some signs of improvement in the world economy, which should be positive for sales" down the road.
Oberhelman's optimism extended to the emerging markets, a source of investor concern in recent weeks. He said Caterpillar expects economic growth to pick up in the world's developing economies in 2014.
Even so, he said Caterpillar expects its mining customers to continue to reduce their investments in new equipment in the coming year. In recent years, the sector had been one of the company's most profitable, and Caterpillar aggressively doubled down on the business through acquisitions.
But in the past year and a half, mining customers, facing investor backlash over unpopular takeovers, budget overruns and falling metal prices, slashed capital spending, slowed development on some projects and shelved others, and postponed or canceled new equipment orders.
As a result, demand for Caterpillar's mining equipment has plunged, and Oberhelman said Monday the company expects those headwinds to continue in 2014, with sales declining another 10 percent.
He said that the company would "take additional actions in 2014" to cut costs.%VIRTUAL-article-sponsoredlinks% He characterized the moves as "tough decisions necessary to better position us down the road when economic conditions improve and our sales rebound."
The Peoria, Ill.-based company, which also makes locomotives and diesel and turbine engines, reported a fourth-quarter profit of $1 billion, or $1.54 a share, up from $697 million, or $1.04 a share, in the fourth quarter of 2012.
Revenue fell 10 percent to $14.4 billion.
Analysts, on average, expected Caterpillar to post a profit of $1.28 a share on sales of $13.6 billion, according to Thomson Reuters estimates.
Caterpillar provided a preliminary outlook for 2014 profit that was slightly better than investors had expected. The company forecast earnings of $5.85 a share, before restructuring costs -- 7 cents a share more than analysts estimated going into Monday's earnings report.
"We see some signs of improvement in the world economy," Oberhelman said.
The optimism includes emerging markets, where Caterpillar expects average economic growth to accelerate to 5 percent in 2014, up from 4.5 percent in 2013.
In early electronic trading, Caterpillar shares jumped 6.6 percent at $91.90 after closing on at $86.17.
