Shares in Caterpillar rallied Tuesday after the heavy machinery manufacturer skated past Wall Street’s quarterly earnings expectations.
The world’s largest construction and mining equipment company posted earnings of $1.09 per share for the second quarter of 2016, excluding major restructuring costs. Analysts had been anticipating an EPS of just 96 cents.
Despite beating earnings forecasts, the company’s quarterly report revealed a major decline in sales activity. Global sales tumbled 16% from the second quarter of 2015, to land at just $10.34 billion – and they were down in every single region, across all departments.
Lower end-user demand for construction and declines in mining operations led to a 16% drop in North American sales, low oil prices caused a 15% reduction in Africa and the Middle East and waning demand led to a 13% decrease in Asia.
Caterpillar’s single biggest decline came out of Latin America, where weak economic conditions in Brazil and Mexico brought sales down 31% year-over-year.
According to CEO Doug Oberhelman, investors shouldn’t anticipate those numbers to recover anytime soon, either.
“Despite a solid second quarter, we’re cautious as we enter the second half of the year. We’re not expecting an upturn in important industries like mining, oil and gas and rail to happen this year,” he said in a statement.
Oberhelman also went on to add that geopolitical turmoil and market uncertainty created by Britain’s vote to leave the European Union and last week’s attempted coup in Turkey would continue to prevent a noticeable climb in sales across Caterpillar’s key markets for the remaining two quarters of the fiscal year.
Bearing that in mind, the company lowered its full-year sales and profit forecast again on Tuesday. Investors have now been told to expect 2016 sales of between $40 billion and $40.5 billion – down from earlier predictions of between $40 billion to $42 billion.
The company added it anticipates earnings of $3.55 per share, excluding restructuring costs, versus earlier guidance of $3.70. Expenses relating to restructuring are also expected to rise to $700 million from the year – up from earlier predictions of $550 million.
Those restructuring plans, which were launched in 2015, will ultimately see Caterpillar shed 10,000 jobs by 2018. Further asset consolidations and manufacturing plant closures are also on the cards. But according to Oberhelman, those plans should ultimately help the company to turn things around in terms of profitability.
“We’re continuing significant restructuring plans, which are designed to bring our cost structure more in line with demand while maintaining our capability to quickly serve our customers when our business recovers,” he said.
“Once it does recover, we expect substantial incremental profit improvement, realizing the benefits of the tough actions we’re implementing now coupled with our ongoing investments in products and digital capabilities.”
Caterpillar shares rose 4.7% to hit a 12-month high off the back of Tuesday’s quarterly report.
Disclosure:Ă‚ I do not own shares relating to any of the companies included in this article.
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