Cat results hit

CATERPILLAR’S Resource Industries segment recorded sales of $US1.99 ($A2.73) billion for the second quarter, down $US250 million on the second quarter of 2014.
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A Caterpillar longwall.

Noel Dyson

The segment managed to break even in the second quarter. That is a step down from the second quarter of 2014 when it managed a $US114 million profit.

This is a result of continued weak commodity prices and mining customers continuing to focus on improving productivity in existing mines and reducing their total capital spends.

That story has remained pretty much the same for the past several quarters.

The decline was due to lower sales volume and the unfavourable impact of currency – about half of that due to the euro. Basically, the stronger US dollar is cruelling Cat’s returns.

Sales were down for both new equipment and aftermarket parts, with Caterpillar suspecting some companies are continuing to delay maintenance and rebuild activities.

The sales decrease was primarily due to lower demand in Latin America, the Asia Pacific region – which Australia falls under – and North America.

The decline in those regions was, however, partly offset by the impact of changes in dealer inventories. Dealers reduced inventory more significantly in the second quarter of 2014 than they did in the second quarter of 2015.

In North America lower sales of mining equipment were partly offset by increases in sales of equipment used to support the quarry and aggregate industry.

The sales drop in the EAME Region – an agglomeration of Europe, Africa, the Middle East and the Commonwealth of Independent States – was largely blamed on unfavourable changes in dealer inventory.

Demand in EAME was flat.

Selling, general and administration and research and development expenses for the Resource Industries segment were about flat as higher spending for new product introductions was offset by lower incentive compensation expense.

Overall Caterpillar’s profit for the quarter was $US710 million, down 29% on the second quarter of 2014.

The company’s total second quarter sales and revenues were $US12.3 billion, down 13% on the $US14.2 billion the company recorded in the second quarter of 2014.

Caterpillar chairman and CEO Doug Oberhelman said the economic and industry conditions were continuing pretty much as expected.

“Our focus during these challenging times is on operational execution and customer success through efforts such as Lean Management and our Across the Table initiative with dealers, while also investing in tomorrow through new technologies, innovation and data analytics with and investing in other companies,” he said.

Across the Table is a joint initiative between Caterpillar and its dealers to identify, build and strength capabilities necessary to meet diverse and changing customer needs.

Oberhelman said the company faced difficult conditions in several of the industries it serviced.

“Because we service cyclical industries we focus intently on operational execution and cost control,” he said.

“This is particularly important when sales decline. Our goal when sales decline is to manage costs so the decline in operating profit is less than 30% of the decline in sales and revenues.

“We did much better than that in the second quarter. We’ve achieved that by closely watching costs, the restricting we’ve done over the past two years and the work done by Caterpillar employees across the world who are proving we can excel in this challenging economic environment.”

The 2015 outlook for profit per share remains unchanged at $US4.70 – or $5, excluding restructuring costs.

The outlook for 2015 sales and revenues is about $US49 billion, down $US1 billion from the previous outlook.

“We originally set the $US50 billion sales and revenues estimate in January and our expectations haven’t changed much since then,” Oberhleman said.

“However, currency impacts from a stronger US dollar are causing sales in many countries to translate into fewer dollars than we initially expected.

“Many of the key industries we serve remain weak and we haven’t seen any signs of improvement.

“Prices for commodities such as coal, iron ore and oil are not signalling an improvement in the short term.”