By James R. Hagerty
Caterpillar Inc. raised its earnings forecast for 2015 but still
expects to fall well short of last year's level amid falling sales
of equipment related to oil and gas exploration and continued
weakness in mining.
The Peoria, Ill.-based maker of construction and mining
equipment said it expects earnings per share of about $4.70 for the
full year, down from $5.88 in 2014. Previously, Caterpillar was
forecasting earnings of $4.60 per share in 2015.
Profit in the first quarter rose 20% to $1.11 billion from $922
million a year earlier, Caterpillar said. Earnings per share
increased to $1.81 from $1.44. Analysts had forecast earnings of
$1.35 for the latest quarter. Caterpillar earnings benefited by 14
cents a share from the sale of the company's remaining stake in a
logistics business.
Sales slipped 4% to $12.7 billion.
Caterpillar maintained its earlier forecast that sales for the
full year will total about $50 billion, down 9% from 2014. That
reflects weaker markets for energy-related engines and equipment
and drops in sales of construction equipment in China and railroad
locomotives in the U.S.
Caterpillar's order backlog at the end of the first quarter was
$16.5 billion, down nearly 15% from a year earlier. The company
said its dealers are likely to reduce inventories this year to
align them with slower sales.
Demand in the latest quarter was weaker in Europe, Asia and
Latin America, Caterpillar said, but increased in North
America.
The company faces a persistent slump in mining equipment,
sluggishness in construction machinery in much of the world and a
more recent slowdown in its most profitable business, engines used
for such things as generating power, pushing gas through pipelines,
running industrial machines and powering trains and ships.
In the face of those pressures, said Andy Kaplowitz, an analyst
at Barclays Bank, "they should not flinch." He urged Caterpillar to
stick with its program of repurchasing shares to support the stock
price. Caterpillar said it bought back $400 million of common stock
in the first quarter and expects to continue buying back shares,
though priorities "can change based on business and market
conditions."
Mr. Kaplowitz also said he hoped Caterpillar wouldn't shy away
from any good acquisition opportunities that may arise. At the same
time, he said, Caterpillar probably needs to be more aggressive
about scaling back production capacity, especially in mining.
Caterpillar has manufacturing capacity for annual sales of $80
billion to $100 billion, but sales now are running at around $50
billion a year, the analyst said. "At $50 billion a year, they have
too much capacity," Mr. Kaplowitz said.
Though Caterpillar wants to be ready with capacity to ramp up
production quickly once demand recovers, Mr. Kaplowitz said the
company may be overestimating its needs. "The world is going to
come back but maybe not in as big a way as Caterpillar believes,"
he said.
Caterpillar's global workforce at the end of the latest quarter
was 129,458, down 1.9% from a year earlier.
Stephen Volkmann, an analyst at Jefferies Group, said
Caterpillar had "done a pretty good job" controlling costs and
funneling cash to shareholders. He said the company seemed an
unlikely target for activist investors seeking major changes and
had no unrelated businesses to shed. "There's nothing obvious to
spin (off) or sell," Mr. Volkmann said.
Corrections & Amplifications
Caterpillar Inc. reported a profit of $922 million a year ago.
An earlier version of this story misstated the figure as
billions.
Write to James R. Hagerty at bob.hagerty@wsj.com
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