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Wednesday, 07/27/2016 9:45:11 AM

Wednesday, July 27, 2016 9:45:11 AM

Post# of 648882
Caterpillar’s outlook is the gloomiest so far this earnings season

* July 27, 2016

Machinery maker sees no rebound in mining, energy or construction

Caterpillar Inc. is not exactly optimistic about the outlook for the rest of the year.

The Peoria, Ill.–based heavy-machinery maker offered one of the gloomiest outlooks of the earnings season so far while delivering steep declines in second-quarter profit and revenue and lowered guidance for the full year. The company is now on track for its fourth full year of declining sales and revenue.

The company is caught in a perfect storm, as it has a significant part of its sales overseas, which are now being hurt by the strong dollar. As an equipment maker, it serves all the sectors that have been hurt by low commodity prices and weak demand, from energy to resource industries to construction. Even its financial-products segment was hurt, in its case by low interest rates.

At the same time, events like the U.K. vote to leave the European Union and the attempted coup in Turkey have created a cloud of uncertainty that is discouraging the company’s customers from making investment decisions.

“We’re not expecting an upturn in important industries like mining, oil and gas and rail to happen this year,” Chief Executive Doug Oberhelman said in the earnings statement. “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.”

Despite all the doom and gloom, shares CAT, +0.95% were up 1.7% at midmorning, while the S&P 500 index SPX, +0.05% was down 0.4%.

In the second quarter, sales declined in all regions and in all Caterpillar segments. Resource industries’ sales took the biggest hit, declining 29% on continued low end-user demand.

Energy and transportation sales declined 20%, largely due to lower end-user demand for oil and gas and transportation applications.

Construction industries’ sales fell 8%, weighed down by weak pricing and lower demand from end users. Financial products’ segment revenue fell 3%.

The company is expecting the competitive pressure in the construction industry to continue through year’s end. And while oil prices have climbed off their lows of the year, “it is not clear at this time that the current price level is sufficient to drive increased demand,” the company said in a Q&A section in its earnings release.

Caterpillar has seen little change in drill rig counts and little improvement in fleet utilization rates.

It listed a range of factors in addition to oil prices that shape its outlook, including recent order rates, quotation activity, current backlog, trends in retail statistics and discussions with customers.

“ Based on all of these factors, we do not see the current price driving significant increase in demand for our products in 2016,” said the release.

The company’s order backlog stood at $11.8 billion at the end of the quarter, down about $1.3 billion from the end of the first quarter. About two thirds of the decline was due to weakness in construction.

Restructuring costs in 2016, which were expected to be about $550 million, are now expected to be about $700 million, or about 80 cents a share. That’s mostly because of additional job cuts that will be needed in the second half. The company ended the second quarter with about 100,000 full-time workers, down from 111,200 in the year-earlier period. Another 2,700 “flexible” jobs were cut to create a total decrease in the global workforce of about 13,900.

http://www.marketwatch.com/story/caterpillars-outlook-is-the-gloomiest-so-far-this-earnings-season-2016-07-26

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