CAT Caterpillar Inc

By Andrew Tangel 

Caterpillar Inc., the world's largest maker of mining and construction equipment, is predicting another tough year in 2017 as the company deals with the fallout from the global commodities bust and prepares for a transition in top leadership.

The Peoria, Ill.-based manufacturing giant said Tuesday that next year's revenue from sales of its hulking yellow bulldozers, trucks and other heavy machines won't be "significantly different" from the about $39 billion in sales expected for all of 2016, its fourth straight year of declines.

Executives pointed to persistent weak demand for its construction, mining and oil equipment around the world amid a continued slump in commodities prices, idle locomotives and trucks and a glut of used machines.

"We've been through an awful, rough period the last four years," said Caterpillar Chairman and Chief Executive Doug Oberhelman, who last week said he would step down. "But I do think we're set up for the future."

Caterpillar's travails are likely to continue well into the tenure of Jim Umpleby, who is slated to take over as CEO in January.

But the company pointed to optimistic signs for the latter half of 2017: commodity prices are off their lows, there are signs of improvement in the Chinese construction market, and construction sales in Russia and Brazil are likely bottoming. Caterpillar's stock price has outperformed in 2016, with shares up about 24% so far this year compared with about 5% for the broader S&P 500. Caterpillar shares fell about 2% to $84.48 in Tuesday trading.

Construction activity and equipment sales in North America are expected to continue falling short of predictions, and there is continued uncertainty in Europe in the wake of the U.K.'s Brexit vote.

In the third quarter, the company said revenue fell 16% to $9.2 billion from the prior year. The company faces potential noncash hits to earnings in the final quarter of the year that could lead the company to report its first full-year loss since 1992.

When Mr. Oberhelman steps down as CEO next year, his role will be split into two. With Mr. Umpleby as CEO, Dave Calhoun, a New York private-equity executive, will become chairman when Mr. Oberhelman steps down from that role at the end of March.

Mr. Oberhelman noted there was shareholder support for splitting the top jobs in a Tuesday call with analysts. He also said there was "no drama" over the leadership transition, adding that he picked the timing of his retirement and new management structure, which he referred to as "just a different way of doing things." Mr. Oberhelman didn't elaborate on why the board decided to split the jobs.

Mr. Umpleby, for his part, said he would "pull together a team of leaders that will refresh our enterprise strategy in the coming months." He didn't take questions.

Overall for the third quarter, Caterpillar reported a profit of $283 million, or 48 cents a share, down from $559 million, or 94 cents a share, a year earlier. Excluding restructuring costs, earnings per share fell to 85 cents from $1.05 a year ago.

Caterpillar on Tuesday also trimmed its profit outlook for the year, saying it expects earnings per share of $2.35, or $3.25 excluding restructuring costs.

The company indicated it could report a loss for all of 2016 because of an expected accounting adjustment in the fourth quarter related to pension and postretirement benefit costs. The company said the adjustment, which wasn't included in this year's outlook, could amount to a hit of $2 billion to this year's posttax earnings, according to the company.

Executives said Caterpillar may face a fourth-quarter write-down of goodwill related to the company's 2011 purchase of Milwaukee mining-equipment maker Bucyrus International Inc. in an $8.8 billion-deal, Caterpillar's largest.

But they said impairment charge would likely be limited to a $1.2 billion portion of Bucyrus-related goodwill estimated at $3.6 billion.

The company is in the midst of a restructuring that is expected to result in the closure of consolidation of 20 plants by the end of 2018.

Caterpillar continued to shrink its workforce in the third quarter, to 97,100 full-time employees, down from the 108,900 full-time employees it had a year ago.

Joshua Jamerson contributed to this article.

Write to Andrew Tangel at Andrew.Tangel@wsj.com

(END) Dow Jones Newswires

October 25, 2016 16:27 ET (20:27 GMT)

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