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Caterpillar Reports First-Quarter 2016 Results

PEORIA, Ill., April 22, 2016 /PRNewswire/ --




First Quarter

($ in billions except profit per share)

2015


2016

Sales and Revenues


$12.702


$9.461

Profit Per Share


$2.03


$0.46

Profit Per Share


$2.07


$0.67

(Excluding Restructuring Costs)




Caterpillar Inc. CAT, -0.39% today announced first-quarter 2016 sales and revenues of $9.5 billion, down from $12.7 billion in the first quarter of 2015. First-quarter 2016 profit per share of $0.46 was down from a profit of $2.03 per share in the first quarter of 2015. Excluding restructuring costs, profit per share was $0.67, compared with $2.07 per share in the first quarter of 2015.

"While first-quarter results were about as we expected, sales and profit were well below the first quarter of 2015. Sales declined across the company with substantial reductions in construction, oil and gas, mining and rail. While many of the industries we serve are challenged, we remain focused on what we can control: the quality of our products, our market position, safety in our facilities and continued restructuring and cost reduction. In fact, our period costs and variable manufacturing costs in the quarter were nearly $500 million lower than the first quarter of 2015," said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman.

2016 Outlook

We have seen recent increases in commodity prices, some signs of improvement in construction equipment in China and better order activity than we expected at bauma, the world's leading trade fair for many of the industries we serve. While we are seeing a few positive signals, other parts of our business remain challenged. As a result, we have lowered the midpoint of the outlook for 2016 sales and revenues about 2 percent.

Sales and revenues in 2016 are expected to be in a range of $40 to $42 billion with a midpoint of $41 billion. The previous outlook was a range of $40 to $44 billion with a midpoint of $42 billion. The decline in the midpoint of the sales and revenues outlook range is a result of several factors that, while not individually large in the context of the outlook, collectively add up to about $1 billion. Those factors include lower transportation sales (rail, marine and the ending of production of on-highway vocational trucks), lower mining sales and weaker price realization than previously expected.

The profit outlook at the midpoint of the sales and revenues range is now $3.00 per share, or $3.70 per share excluding restructuring costs. The previous profit outlook was $3.50 per share, or $4.00 per share excluding restructuring costs at the midpoint of the previous sales and revenues outlook. The expected decline in sales and revenues and an increase in expected restructuring costs are the primary reasons for the decline in the profit outlook.

Restructuring costs are now expected to be about $550 million in 2016, up $150 million from the previous outlook. The decision to end production of on-highway vocational trucks is the primary reason for the increase in restructuring costs.

"While many of the industries we serve are challenged today, we're looking ahead and investing for the future. We're investing substantially in R&D, driving forward on our Lean journey, continuing implementation of Across the Table with our dealers and accelerating our digital strategy," said Oberhelman.

"Our digital strategy is an exciting investment for the long term. We're hard at work, inside Caterpillar and with our digital partners, developing the data architecture and applications that will make our products smarter and help our customers improve productivity and safety. Our goal is to help customers be more productive, better manage their fleets and make more money with Caterpillar than they could with our competitors. Our approximately 400,000 (and growing) connected assets mean entire fleets and job sites – from machines to tablets to drones – will eventually share data on one common technology platform in the age of smart iron. One thing that I am certain of is that it's times like these when the Caterpillar team demonstrates the innovation and ambition to be the leader in all we do," added Oberhelman.

Highlights

  • First-quarter sales and revenues and profit excluding restructuring costs about as expected
  • Continued tough market conditions in many of the company's businesses – Mining, oil and gas, rail and construction in key developing countries
  • Good operational performance continues – Overall machine market position better in first quarter of 2016 than this point last year; continues to improve in China. Focus remains on quality, safety and cost reduction
  • Outlook lowered – Midpoint of sales and revenues range lowered about 2 percent
  • Strong balance sheet – Maintained $0.77 per share dividend (announced April 13, 2016)
  • Significant progress on restructuring actions – Contributed to substantial cost reduction in first quarter
  • Investment in the future continues – Focus on accelerated digital technology, R&D, Lean and dealer-focused initiative "Across the Table"

Recast of 2015 Earnings for Change in Accounting Principle

As discussed in the year-end 2015 earnings release, Caterpillar has implemented a change in accounting principle for pension and OPEB costs. Under the new accounting principle, we will recognize actuarial gains and losses as a mark-to-market gain or loss when they occur rather than amortizing them to earnings over time. As a result of the accounting change, 2015 earnings have been recast to make results comparable on a year-over-year basis. The accounting change added $0.68 per share to 2015 profit. Profit per share for 2015 has been recast from $3.50 per share to $4.18 per share. Excluding mark-to-market pension and OPEB losses and restructuring costs, profit per share for 2015 has been recast from $4.64 per share to $5.47 per share. First-quarter 2015 profit per share has been recast from $1.81 per share to $2.03 per share. Excluding restructuring costs first-quarter 2015 profit per share has been recast from $1.86 per share to $2.07 per share. More information on the impact of the change in accounting principle can be found on page 14.

Notes:

  • Glossary of terms is included on pages 19-20; first occurrence of terms shown in bold italics.
  • Information on non-GAAP financial measures is included on page 21.
  • Caterpillar will conduct a teleconference and live webcast, with a slide presentation, beginning at 10 a.m. Central Time on Friday, April 22, 2016, to discuss its 2016 first-quarter results. The slides accompanying the webcast will be available before the webcast on the Caterpillar website at http://www.caterpillar.com/investors/events-and-presentation... .

About Caterpillar: For 90 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent. Customers turn to Caterpillar to help them develop infrastructure, energy and natural resource assets. With 2015 sales and revenues of $47.011 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company principally operates through its three product segments - Construction Industries, Resource Industries and Energy & Transportation - and also provides financing and related services through its Financial Products segment. For more information, visit caterpillar.com. To connect with us on social media, visit caterpillar.com/social-media.

Forward-Looking Statements

Certain statements in this press release relate to future events and expectations and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "believe," "estimate," "will be," "will," "would," "expect," "anticipate," "plan," "project," "intend," "could," "should" or other similar words or expressions often identify forward-looking statements. All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions. These statements do not guarantee future performance, and we do not undertake to update our forward-looking statements.

Caterpillar's actual results may differ materially from those described or implied in our forward-looking statements based on a number of factors, including, but not limited to: (i) global and regional economic conditions and economic conditions in the industries we serve; (ii) government monetary or fiscal policies and infrastructure spending; (iii) commodity price changes, component price increases, fluctuations in demand for our products or significant shortages of component products; (iv) disruptions or volatility in global financial markets limiting our sources of liquidity or the liquidity of our customers, dealers and suppliers; (v) political and economic risks, commercial instability and events beyond our control in the countries in which we operate; (vi) failure to maintain our credit ratings and potential resulting increases to our cost of borrowing and adverse effects on our cost of funds, liquidity, competitive position and access to capital markets; (vii) our Financial Products segment's risks associated with the financial services industry; (viii) changes in interest rates or market liquidity conditions; (ix) an increase in delinquencies, repossessions or net losses of Cat Financial's customers; (x) new regulations or changes in financial services regulations; (xi) a failure to realize, or a delay in realizing, all of the anticipated benefits of our acquisitions, joint ventures or divestitures; (xii) international trade policies and their impact on demand for our products and our competitive position; (xiii) our ability to develop, produce and market quality products that meet our customers' needs; (xiv) the impact of the highly competitive environment in which we operate on our sales and pricing; (xv) failure to realize all of the anticipated benefits from initiatives to increase our productivity, efficiency and cash flow and to reduce costs; (xvi) additional restructuring costs or a failure to realize anticipated savings or benefits from past or future cost reduction actions; (xvii) inventory management decisions and sourcing practices of our dealers and our OEM customers; (xviii) compliance with environmental laws and regulations; (xix) alleged or actual violations of trade or anti-corruption laws and regulations; (xx) additional tax expense or exposure; (xxi) currency fluctuations; (xxii) our or Cat Financial's compliance with financial covenants; (xxiii) increased pension plan funding obligations; (xxiv) union disputes or other employee relations issues; (xxv) significant legal proceedings, claims, lawsuits or government investigations; (xxvi) changes in accounting standards; (xxvii) failure or breach of IT security; (xxviii) adverse effects of unexpected events including natural disasters; and (xxix) other factors described in more detail under "Item 1A. Risk Factors" in our Form 10-K filed with the SEC on February 16, 2016 for the year ended December 31, 2015.

CONSOLIDATED RESULTS

Consolidated Sales and Revenues

Consolidated Sales and Revenues ComparisonFirst Quarter 2016 vs. First Quarter 2015 To access this chart, go to http://www.caterpillar.com/en/investors/quarterly-results.html for the downloadable version of Caterpillar 1Q 2016 earnings.

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between the first quarter of 2015 (at left) and the first quarter of 2016 (at right). Items favorably impacting sales and revenues appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting sales and revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.

Sales and Revenues

Total sales and revenues were $9.461 billion in the first quarter of 2016, compared with $12.702 billion in the first quarter of 2015, a decline of $3.241 billion, or 26 percent. The decrease was primarily due to lower sales volume. While sales for both new equipment and aftermarket parts declined in all segments, most of the decrease was for new equipment. The unfavorable impact of price realization and currency also contributed to the decline.

Sales declined in all regions. In North America, sales decreased 26 percent due to both lower end-user demand, primarily in Energy & Transportation, and the unfavorable impact of changes in dealer inventories, primarily in Construction Industries. In EAME, sales declined 24 percent, primarily in Africa/Middle East due to weak economic conditions resulting from low oil and other commodity prices. Asia/Pacific sales declined 23 percent, primarily due to lower end-user demand for Energy & Transportation applications and products used in mining. Sales decreased 43 percent in Latin America, primarily due to widespread economic weakness across the region. The most significant decreases were in Brazil and Mexico.

Sales decreased in all segments. Energy & Transportation's sales declined 33 percent largely due to lower end-user demand for oil and gas and transportation applications. Construction Industries' sales decreased 19 percent, primarily due to the unfavorable impact of changes in dealer inventories, lower demand from end users and unfavorable price realization. Resource Industries' sales declined 26 percent, mostly due to continued low end-user demand. Financial Products' segment revenues were down 7 percent, primarily due to lower average earning assets and lower average financing rates.

Consolidated Operating Profit

Consolidated Operating Profit ComparisonFirst Quarter 2016 vs. First Quarter 2015 To access this chart, go to http://www.caterpillar.com/en/investors/quarterly-results.html for the downloadable version of Caterpillar 1Q 2016 earnings.

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit (Loss) between the first quarter of 2015 (at left) and the first quarter of 2016 (at right). Items favorably impacting operating profitappear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar. Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees. The bar entitled Other includes consolidating adjustments and Machinery, Energy & Transportation other operating (income) expenses.

Operating profit for the first quarter of 2016 was $494 million, compared with $1.702 billion in the first quarter of 2015. The decrease of $1.208 billion was primarily due to lower sales volume, including an unfavorable mix of products, resulting from continued weak commodity prices globally and economic weakness in developing countries. In addition, price realization and restructuring costs were unfavorable. These items were partially offset by favorable period costs and variable manufacturing costs.

The unfavorable price realization resulted from competitive market conditions and an unfavorable geographic mix of sales. Variable manufacturing costs were favorable, primarily due to improved material costs. Period costs were lower, primarily resulting from substantial restructuring and cost reduction actions and lower short-term incentive compensation expense. The reductions impacted period manufacturing costs and selling, general and administrative expenses (SG&A). Research and development expenses (R&D) were about flat.

Restructuring costs of $161 million in the first quarter of 2016 were primarily related to our decision to discontinue production of on-highway vocational trucks and other restructuring actions across the company. In the first quarter of 2015, restructuring costs were $35 million.

Other Profit/Loss Items

  • Other income/expense in the first quarter of 2016 was zero, compared with income of $194 million in the first quarter of 2015. The unfavorable change was primarily due to the absence of a gain of $120 million on the sale of the remaining 35 percent interest in our former third-party logistics business. In addition, the net impact from currency translation and hedging gains and losses was unfavorable. There were net losses in the first quarter of 2016, compared to net gains in the first quarter of 2015.
  • The provision for income taxes in the first quarter reflects an estimated annual tax rate of 25 percent, compared to 29.5 percent for the first quarter of 2015 and 25.5 percent for the full-year 2015 excluding discrete items. The full-year rate for 2015 was lower than the first-quarter 2015 rate, primarily due to changes in the geographic mix of profits from a tax perspective along with the impact of the permanent renewal of the U.S. research and development tax credit in the fourth quarter of 2015.

Global Workforce

Caterpillar worldwide, full-time employment was about 101,400 at the end of the first quarter of 2016, compared with about 113,300 at the end of the first quarter of 2015, a decrease of about 11,900 full-time employees. The flexible workforce decreased by about 3,200 for a total decrease in the global workforce of about 15,100. The decrease was primarily the result of restructuring programs and lower production volumes.



March 31



2016


2015


Increase/

(Decrease)

Full-time employment


101,400


113,300


(11,900)

Flexible workforce


12,900


16,100


(3,200)

Total


114,300


129,400


(15,100)








Geographic summary of change







U.S. workforce






(8,000)

Non-U.S. workforce






(7,100)

Total






(15,100)

SEGMENT RESULTS

Segment results for the first quarter of 2015 have been recast. See page 14 for additional details.

Sales and Revenues by Geographic Region























%


North


%


Latin


%




%


Asia/


%

(Millions of dollars)

Total


Change


America


Change


America


Change


EAME


Change


Pacific


Change

First Quarter 2016

























Construction Industries¹

$ 4,043


(19)

%


$ 2,058


(18)

%


$ 231


(52)

%


$ 847


(17)

%


$ 907


(9)

%

Resource Industries²

1,449


(26)

%


604


(23)

%


268


(14)

%


262


(43)

%


315


(23)

%

Energy & Transportation³

3,278


(33)

%


1,566


(34)

%


200


(53)

%


982


(21)

%


530


(40)

%

All Other Segments�'

38


(47)

%


15


(42)

%


1


(75)

%


9


(63)

%


13


(28)

%

Corporate Items and Eliminations

(28)





(24)





(1)





(2)





(1)




Machinery, Energy & Transportation

$ 8,780


(27)

%


$ 4,219


(26)

%


$ 699


(43)

%


$ 2,098


(24)

%


$ 1,764


(23)

%


























Financial Products Segment

$ 743


(7)

%


$ 459


2

%


$ 87


(19)

%


$ 98


(10)

%


$ 99


(23)

%

Corporate Items and Eliminations

(62)





(34)





(14)





(4)





(10)




Financial Products Revenues

$ 681


(8)

%


$ 425


-

%


$ 73


(25)

%


$ 94


(10)

%


$ 89


(24)

%


























Consolidated Sales and Revenues

$ 9,461


(26)

%


$ 4,644


(24)

%


$ 772


(41)

%


$ 2,192


(23)

%


$ 1,853


(23)

%


























First Quarter 2015

























Construction Industries¹

$ 5,014





$ 2,520





$ 480





$ 1,017





$ 997




Resource Industries²

1,971





789





311





462





409




Energy & Transportation³

4,915





2,368





425





1,244





878




All Other Segments�'

72





26





4





24





18




Corporate Items and Eliminations

(11)





(16)





1





1





3




Machinery, Energy & Transportation

$11,961





$ 5,687





$ 1,221





$ 2,748





$ 2,305





























Financial Products Segment

$ 795





$ 451





$ 107





$ 109





$ 128




Corporate Items and Eliminations

(54)





(28)





(10)





(5)





(11)




Financial Products Revenues

$ 741





$ 423





$ 97





$ 104





$ 117





























Consolidated Sales and Revenues

$12,702





$ 6,110





$ 1,318





$ 2,852





$ 2,422





























1 Does not include inter-segment sales of $8 million and $23 million in first quarter 2016 and 2015, respectively.

2 Does not include inter-segment sales of $71 million and $87 million in first quarter 2016 and 2015, respectively.

3 Does not include inter-segment sales of $632 million and $794 million in first quarter 2016 and 2015, respectively.

4 Does not include inter-segment sales of $92 million and $103 million in first quarter 2016 and 2015, respectively.






































Sales and Revenues by Segment




































First


Sales


Price







First


$


%

(Millions of dollars)

Quarter 2015


Volume


Realization


Currency



Other


Quarter 2016


Change


Change

Construction Industries

$ 5,014


$ (701)


$ (172)


$ (98)



$ -


$ 4,043


$ (971)


(19)

%

Resource Industries

1,971


(463)


(38)


(21)



-


1,449


(522)


(26)

%

Energy & Transportation

4,915


(1,543)


(24)


(70)



-


3,278


(1,637)


(33)

%

All Other Segments

72


(33)


-


(1)



-


38


(34)


(47)

%

Corporate Items and Eliminations

(11)


(19)


-


2



-


(28)


(17)






















Machinery, Energy & Transportation

$ 11,961


$ (2,759)


$ (234)


$ (188)



$ -


$ 8,780


$ (3,181)


(27)

%



















Financial Products Segment

795


-


-


-



(52)


743


(52)


(7)

%

Corporate Items and Eliminations

(54)


-


-


-



(8)


(62)


(8)




Financial Products Revenues

$ 741


$ -


$ -


$ -



$ (60)


$ 681


$ (60)


(8)

%



















Consolidated Sales and Revenues

$ 12,702


$ (2,759)


$ (234)


$ (188)



$ (60)


$ 9,461


$ (3,241)


(26)

%





































Operating Profit (Loss) by Segment










First


First


$


%

(Millions of dollars)

Quarter 2016


Quarter 2015


Change


Change

Construction Industries

$ 440


$ 745


$ (305)


(41)

%

Resource Industries

(96)


96


(192)


(200)

%

Energy & Transportation

410


1,024


(614)


(60)

%

All Other Segments

(7)


(7)


-


-

%

Corporate Items and Eliminations

(357)


(319)


(38)




Machinery, Energy & Transportation

$ 390


$ 1,539


$ (1,149)


(75)

%

Financial Products Segment

168


227


(59)


(26)

%

Corporate Items and Eliminations

(1)


3


(4)




Financial Products

$ 167


$ 230


$ (63)


(27)

%

Consolidating Adjustments

(63)


(67)


4













Consolidated Operating Profit (Loss)

$ 494


$ 1,702


$ (1,208)


(71)

%










CONSTRUCTION INDUSTRIES
















































(Millions of dollars)

















Sales Comparison

















First Quarter2015


SalesVolume


PriceRealization


Currency


First Quarter2016


$ Change


% Change


Sales Comparison1

$5,014


($701)


($172)


($98)


$4,043


($971)


(19)

%




















Sales by Geographic Region


































First Quarter2016


First Quarter2015


$Change


%Change









North America

$2,058


$2,520


($462)


(18)

%









Latin America

231


480


(249)


(52)

%









EAME

847


1,017


(170)


(17)

%









Asia/Pacific

907


997


(90)


(9)

%









Total1

$4,043


$5,014


($971)


(19)

%


























Operating Profit



































First Quarter2016


First Quarter2015


$Change


%Change









Operating Profit

$440


$745


($305)


(41)

%

























1 Does not include inter-segment sales of $8 million and $23 million in first quarter 2016 and 2015, respectively.


Construction Industries' sales were $4.043 billion in the first quarter of 2016, a decrease of $971 million, or 19 percent, from the first quarter of 2015. The decrease in sales was due to lower volume, unfavorable price realization and the unfavorable impact of currency. While sales declined for both new equipment and aftermarket parts, substantially all of the decrease was for new equipment.

  • Sales volume declined primarily due to the unfavorable impact of changes in dealer inventories. Dealers increased inventories in both the first quarter of 2016 and the first quarter of 2015; however, the increase was greater in the first quarter of 2015. In addition, deliveries to end users were lower.
  • The unfavorable impact of currency was due to the strengthening of the U.S. dollar compared to most other currencies.

Sales decreased in all regions.

  • In North America, the sales decline was primarily due to dealers increasing inventories more significantly in the first quarter of 2015 than the first quarter of 2016. In addition, although residential and nonresidential construction activity is improving, sales to end users were lower than the first quarter of 2015. We believe declines in construction activity related to oil and gas have resulted in the availability of existing construction equipment for other purposes. Unfavorable price realization resulted from competitive market conditions.
  • In Latin America, end-user demand was down across the region, with the most significant declines in Brazil due to depressed economic conditions and in Mexico due to weak construction activity.
  • Lower sales in EAME were primarily due to unfavorable price realization and lower end-user demand. Price realization was unfavorable across the region due to competitive market conditions. The decline in end-user demand was most significant in oil-producing economies. In addition, sales declined in South Africa where we believe an uncertain regulatory and political environment contributed to lower end-user demand.
  • Sales in Asia/Pacific were down as a result of the unfavorable impact of changes in dealer inventories, which were about flat in the first quarter of 2016 and increased in the first quarter of 2015.

Construction Industries' profit was $440 million in the first quarter of 2016, compared with $745 million in the first quarter of 2015. The decrease in profit was primarily due to lower sales volume, including an unfavorable mix of products and unfavorable price realization resulting from competitive market conditions. The decline was partially offset by favorable costs, primarily due to restructuring and cost reduction actions and lower material costs.

RESOURCE INDUSTRIES














































(Millions of dollars)
















Sales Comparison
















First Quarter2015


SalesVolume


PriceRealization


Currency



First Quarter2016


$ Change


% Change

Sales Comparison1

$1,971


($463)


($38)


($21)



$1,449


($522)


(26)

%

















Sales by Geographic Region
































First Quarter2016


First Quarter2015


$Change


%Change








North America

$604


$789


($185)


(23)

%








Latin America

268


311


(43)


(14)

%








EAME

262


462


(200)


(43)

%








Asia/Pacific

315


409


(94)


(23)

%








Total1

$1,449


$1,971


($522)


(26)

%
























Operating Profit (Loss)
































First Quarter2016


First Quarter2015


$Change


%Change









Operating Profit (Loss)

($96)


$96


($192)


(200)

%
























1 Does not include inter-segment sales of $71 million and $87 million in first quarter 2016 and 2015, respectively.


Resource Industries' sales were $1.449 billion in the...


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