By James R. Hagerty
Caterpillar Inc. is resisting suggestions from some Wall Street
analysts that it should slash much more deeply into production
capacity as demand for construction, mining and oil equipment
continues to slump.
The Peoria, Ill.-based maker of engines and heavy equipment on
Thursday reported a 29% profit decline for the second quarter. It
said demand for mining equipment remains "severely depressed" and
sales of equipment used in construction and oil exploration have
also begun falling. However, Caterpillar left its profit forecast
for the full year unchanged and said the cost cuts already made
have allowed it to keep its balance sheet strong enough to buy back
more shares and raise dividends.
With Caterpillar sales running at about 25% below the level of
three years ago, analysts asked Chief Executive Doug Oberhelman
during a conference call if he thought deeper cost cuts were
needed. "We are constantly monitoring the market," he said,
promising to slash spending if the global economy gets much worse.
But Mr. Oberhelman said Caterpillar wants to retain enough capacity
so it can be ready to take advantage of an eventual recovery.
Caterpillar over the past two years has shut some of its smaller
U.S. plants making mining equipment and is slashing the workforce
at a large plant in Gosselies, Belgium. The global workforce at the
end of June was 126,800, down 20% from three years before.
Caterpillar held about $7.8 billion of cash at the end of the
latest quarter, compared with $7.9 billion a year earlier, and said
its balance sheet has held up much better than it did in past
slumps. Caterpillar raised its dividend 10% last month and plans to
spend $1.5 billion buying back stock in the third quarter.
The resource industries division, which mainly makes mining
equipment, broke even in the latest quarter. That is down from $114
million a year earlier and $1.4 billion in the second quarter of
2012, when the division accounted for more than half the company's
operating profit amid a global boom in mining investment. Now,
Caterpillar said, mining companies continue to reduce spending on
equipment, maintenance and even spare parts.
"Our (mining) trucks and ancillary equipment are being used
longer and longer and longer," Mr. Oberhelman said. Eventually, he
said, miners will have to buy new trucks.
Caterpillar kept is forecast for full-year earnings per share at
$4.70, down from $5.88 in 2014. It reduced its sales forecast for
the year to $49 billion from $50 billion. That compares with sales
of $55.2 billion last year and a peak of nearly $66 billion in
2012.
For the latest quarter, profit came to $710 million, or $1.16
per share, down from $999 million, or $1.57 per share, a year
earlier. Excluding restructuring costs, earnings per share were
$1.27 in the latest quarter, roughly in line with Wall Street
expectations. Sales declined 13% to $12.32 billion.
Write to James R. Hagerty at bob.hagerty@wsj.com
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