Caterpillar Popping On Better-Than-Expected Profit, Outlook

Jan 27 2014, 9:21am CST | by

Aggressive cost cutting really can make all the difference. That’s the lesson from Caterpillar's fourth quarter earnings report, out Monday morning. The world’s largest maker of construction and mining equipment saw a 10% drop in fourth quarter revenue, but thanks to job cuts and other cost savings measures, Caterpillar beat the Street and grew its profit by nearly 50%. As a result, its shares have popped more than 6% in early Monday trading.

Caterpillar reported $14.4 billion in fourth quarter 2013 revenue, a 10% decline over the fourth quarter of 2012 but beating the Street consensus of $13.5 billion. Profit, however, increased 44% to $1 billion for the quarter, resulting in earnings of $1.54 per share, a 48% increase over the $1.04 per share for the fourth quarter of 2012 and coming in well above analyst estimates of $1.29 per share.

On a full-year basis, Caterpillar saw $55.7 billion in revenue, a 16% drop over 2012′s revenue that was largely due to a decline in sales for new mining machines. The company reported $3.8 billion in full-year profit, resulting in earnings of $5.75 per share, a 32% drop over earnings per share in 2012.

Calling 2013 an “incredibly tough year,” Caterpillar chairman and CEO Doug Oberhelman said Monday morning that turning a profit in the fourth quarter was not easy.

“In such a challenging environment, I am proud of the way our employees came together in 2013.  Despite a sales and revenues decline of about $10 billion, we set a record for operating cash flow, strengthened our balance sheet and improved our overall market position for machines, ” he said in a statement.  ”Cost flexibility is critical to our strategy and was a significant focus in 2013 as we took substantial actions to help maintain profitability as sales declined.”

Among the cost savings efforts he’s referencing are the previously announced job cuts, furloughs and temporary shut down of several plants. As of December 31, 2013, Caterpillar’s workforce was 9,703 jobs smaller than it was at year-end 2012. Caterpillar said Monday morning that it also lowered its inventory by $2.9 billion for all of 2013 and is re-sourcing products to more cost effective locations.

The year was overshadowed by a sales decline in high-margin mining products, which Caterpillar said was worse than it expected and is a situation that is unlikely to turn around in the short term. However, Chinese excavators are giving the company one reason to smile: full-year 2013 sales and revenue in China were about $3.5 billion, a more-than 20% increase from 2012. Stateside construction spending was also a bright spot: the company saw $1.8 billion in North American fourth quarter construction sales, a 21% increase over 2012 and a sign that, perhaps, the American economy is gaining steam.

Caterpillar also announced plans Monday to repurchase $1.7 billion worth of stock in the first quarter of 2014 and said that the board of directors has approved an additional $10 billion in stock repurchases through year-end 2018.

Looking towards 2014, Caterpillar is surprisingly optimistic, predicting $56 billion in full-year sales and revenue (plus or minus 5%, it said) and $5.85 in full-year per-share profit. Glossing over current worries regarding the world’s emerging markets aside, Oberhelman said, “We see some signs of improvement in the world economy, which should be positive for sales in our Construction Industries and Power Systems segments.” The company also said it expects 2014 commodity prices to be high enough to make investments attractive, but mining companies may continue to remain cautious with equipment investments.

Following the release of the better-than-expected earnings results, shares of Caterpillar popped as much as 7.1% in Monday pre-market trading. As the opening bell approached, the stock was poised to open nearly $6 higher than its Friday closing price of $86.17. The company was battered in 2013 trading, finishing the year 2.88% down against the broader market’s 30% increase.

Source: Forbes Business


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