Caterpillar Hails Turn In Sales, Lifts View Machine Maker Points to Recovery -- WSJ

By Andrew Tangel Features Dow Jones Newswires

Caterpillar Inc. is gaining steam after years of sluggish demand for its giant yellow trucks and heavy machinery, as some markets hobbled by a yearslong commodity slump begin to turn around.

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The equipment giant reported its first quarterly sales increase since 2015 for the period ended March 31, and boosted its outlook for this year on signs of recovery in some long-struggling construction and mining markets.

"It's a start of a recovery," Chief Financial Officer Brad Halverson said in an interview. "We're feeling positive about things -- much better than we felt a year ago for sure."

The results mark an unexpected victory for Chief Executive Jim Umpleby, who since taking over on Jan. 1 has pushed ahead with cuts to Caterpillar's workforce and manufacturing footprint and dealt with a raid by federal agents at the company's headquarters in Peoria, Ill.

Caterpillar said it expects to take in up to $41 billion in revenue this year; its previous projection topped out at $39 billion. Caterpillar reported $38.5 billion in revenue in 2016, its fourth straight year of declining sales.

On Monday, Caterpillar reported a measure of retail sales of its machines world-wide had increased for the first time since November 2012. Caterpillar shares rose 7.9% Tuesday to close at $104.42, the highest level since November 2014.

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Rising commodity prices and mining activity in much of the world outside the Americas helped drive a 15% revenue increase for Caterpillar's resource-industries segment in the first quarter, thanks largely to aftermarket parts sales. Revenue in Caterpillar's construction segment also increased 1% the first quarter, boosted by sales in Asia-Pacific and Latin America. The company said strong demand in China for public works and housing projects was in large part responsible for that bump.

Caterpillar was sent reeling in recent years as commodity prices slumped and global mining activity slowed. The downturn consumed the final years of Doug Oberhelman's tenure as chairman and CEO before he retired at the end of March.

Caterpillar executives said Tuesday that many of their main markets remain depressed. Its construction-equipment sales remain weak in many markets outside of the Asia-Pacific region. Economic turmoil in Brazil has weighed on business there, and Middle Eastern economies remain hobbled by low oil prices.

"There continues to be uncertainty across the globe, potential for volatility in commodity prices, and weakness in key markets," Mr. Umpleby said. He called his first quarter as chief executive "eventful."Despite positive signals abroad, Caterpillar reported a 7% decline in construction sales in North America.

Amy Campbell, director of investor relations, said it was "very doable" for Caterpillar to double the number large mining trucks it sells this year to about 140; but that would still be the second-lowest number of those vehicles Caterpillar has sold in a year.

Caterpillar cited a glut of used equipment on the market and "weak infrastructure development." Executives have said that even if President Donald Trump succeeds in his plan to inject $1 trillion into public-works projects, the boost in infrastructure spending might not translate into new business for Caterpillar until next year.

Caterpillar's business in the U.S. in many ways reflects activity in the broader domestic construction market.

But many used machines remain on the market in the U.S., and a building spurt may not immediately translate into orders for new machines. Japanese rival Komatsu Ltd. reports earnings this week. Analysts will be looking for signs that its recent performance also reflects evidence of pockets of improved activity globally and in the U.S.

Caterpillar's restructuring costs are expected to jump to $1.25 billion this year, up from a previously projected $750 million, as Caterpillar closes factories in Aurora, Ill., and Gosselies, Belgium. Its workforce continues to shrink along with its global manufacturing footprint. Caterpillar had 95,300 full-time employees at the end of the first quarter, down from 101,400 a year earlier. In a call with analysts, Mr. Umpleby offered no new insights into the federal government's criminal investigation of the company's tax strategy, one of its Swiss subsidiaries and export filings.

Mr. Halverson said the multiple rounds of cuts have "been really hard on us and our employees," but he didn't rule out further closures and said the company would pay close attention to costs.

On March 2, agents from the U.S. Department of Commerce, Internal Revenue Service and the Federal Deposit Insurance Corp.'s inspector general raided Caterpillar's headquarters and two nearby facilities. Executives have said the company was surprised by the search warrant, noting Caterpillar's cooperation with the investigation.

"If we find something that violates our values and our code of conduct we will take appropriate action," Mr. Umpleby said. Mr. Halverson, in the interview, declined to elaborate.

Overall, Caterpillar reported a profit of $192 million or 32 cents a share for the first quarter, compared with $271 million or 46 cents a share a year ago. Excluding restructuring costs, the company said it earned $1.28 a share, compared with 64 cents a year ago. Total sales and revenues rose to $9.82 billion from $9.46 billion a year ago.

Caterpillar expects earnings per-share this year to be $2.10 based on sales at the midpoint of projections, or $3.75 excluding restructuring costs. Previously the company said it expected per-share earnings of $2.30, or $2.90 excluding restructuring costs.

--Joshua Jamerson contributed to this article.

Write to Andrew Tangel at Andrew.Tangel@wsj.com

(END) Dow Jones Newswires

April 26, 2017 02:47 ET (06:47 GMT)