Caterpillar Inc. (CAT, Financial) released its fourth-quarter 2020 results before the opening bell on Jan. 29.
The heavy equipment manufacturer posted earnings and revenue that exceeded Wall Street's estimates thanks to its cost-cutting initiatives, which was partially offset by poor end-user demand.
A look at the quarter
The Deerfield, Illinois-based company recorded adjusted earnings per share of $2.12, down roughly 22% as compared to the prior-year quarter. Analysts had predicted EPS of $1.46. Revenue of $11.2 billion tumbled 15% on a year-over-year basis but surpassed expectations of $11.18 billion.
Operating profit amounted to $1.38 billion, down 25% from the same period last year thanks to lower sales volume and unfavourable price realization. This was partially compensated by lower selling, general and administrative (SG&A) expenses and research and development expenses.
Chairman and CEO Jim Umpleby commented:
"Our fourth-quarter and full-year results reflect the team's agility in a challenging environment while executing our strategy for long-term profitable growth. We achieved the adjusted operating profit margin established during our 2019 Investor Day while continuing to invest in products and services. We are well-positioned for the future and will emerge from the pandemic as an even stronger company."
The company exited the quarter with $9.4 billion of enterprise cash. In addition, the company had more than $14 billion of available credit lines.
Segment performance
Sales in the Energy and Transportation division stood at $4.8 billion, down 19% from the prior year. Within the segment, the oil and gas and power generation segments witnessed slumps in sales. The operating profit dropped 41% in the fourth quarter to $687 million.
Resource Industries' sales dipped 9% to $2.2 billion on low demand for both mining and heavy construction equipment. By contrast, the operating profit climbed 5% in the reported quarter to $273 million on the back of lower manufacturing and research and development expenses.
Construction Industries' sales were $4.5 billion, down 10% on account of weak sales volume. Operating profit came in at $630 million, which reflected a decline of 4%.
Geographically, consolidated sales were down 8% in Asia Pacific, 21% in North America, 9% in Latin America and 11% in the Europe, Africa and Middle East (EAME) segment.
The industrial giant said that the primary production facilities across all its three main segments are now functioning. However, some facilities are running at reduced capacities.
In view of trimming costs, the company has also held back on increasing annual salaries as well as bonuses for many employees and senior executives.
Conclusion
Caterpillar, a bellwether for economic development, has been experiencing business slowdown on account of the pandemic and the U.S.-China trade feud. Sales of mining trucks, bulldozers and other equipment have softened as buyers are postponing capital expenditure. Nonetheless, a fast economic recovery in China coupled with a rise in residential activity in North America is expected to boost retail sales in the first quarter.
Disclosure: I do not hold any positions in the stocks mentioned.
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