Caterpillar Inc. (CAT, Financial), the world leading corporation in the manufacturer of construction and mining equipment, is aiming to bring in revenue of $50 million for this year. So says their CEO Douglas R. Oberhelman in a recent interview. This optimism follows a better than expected first quarter results for the mining and equipment maker. Caterpillar said it earned $12.7 billion which is better than the $12.38 billion returns forecasted by Wall Street. In the TV interview Oberhelman did say he was pleased but warns that he is not expecting a repeat of this quarter for the remainder of 2015.
Reasons for outlook
The Chairman and CEO told CNBC, “We saw construction in the U.S. and North America up. And that’s the bright spot we have right now.” He went on to say, “That though it’s fairly anaemic but it’s growing…kind of quarter by quarter.” He also stated that weak currencies had impacted their growth. Though they have major asset bases in several of the major economies the world over, rising operation costs in these regions and a relatively strong US dollar has seen them lose about 4% in revenue over the same quarter from last year. Construction is growing, even if slowly, in North America but in the rest of the world it is slow. Brazil suffering from stagnant growth in their economy of about 0.1% GDP in the third quarter of 2014 following on from a large spending bill for two world games. In Europe the economy by and large remains flat while in China there has been a steady decrease. In China the rapid growth that they were experiencing at around the start of the decade has steadily been slowing in the last six years. Their GDP grew at 7% in the first quarter of 2015 which when compared with the same period of 2014 was 7.3%. It is reported that this is the lowest growth for China since 2009. This is mainly because of a slowdown in construction and manufacturing as the Xi Jinping lead government looks to restructure the country’s growth model which is felt by many is unsustainable in its present state.
Market scenario
Caterpillar’s competitors have also been feeling the same tight margins. Deere & Company (DE, Financial) for example had a net income growth in January 2015 of a negative 10.62% from 2014. Their sales or revenue growth was not much better with a change of -4.57% from 2014. Komatsu Ltd. (KMTUY, Financial), another major competitor based in Japan had earnings per share of just 39.53 yen for the first quarter of 2014. Their estimated earnings were generally flat for the rest of 2014, with a noticeable jump to 60.67 yen per share in the first quarter of 2015.
2015 outlook
Along with estimated revenue of 50 billion the outlook for profit per share has improved slightly. The expectation is now at $4.70 or $5.00 per share excluding restricting costs. The previous outlook was $4.60, or $4.75 excluding restricting costs. Caterpillar is expecting restructuring costs to be about $250 million, which is $100 million higher than the previous outlook. This is primarily related to plans for facilities that produce mining products.
According to Oberhelman despite the strong returns from the first quarter in 2015 it is not expected for the next three quarters to be as good. However to make certain to reach their new goal of $50 billion the chairman and CEO says, “We’re working to improve what we can control so that when our cyclical businesses recover, we will be able to respond quickly, benefitting our company, our customers and our stakeholders.” Even though you may not be making grand profits you should be making solid returns with Caterpillar stock.
