One of the most striking recoveries in the first quarter was that of Caterpillar stock, which despite reporting what is now a record 40 consecutive months of declining annual retail sales …
… had soared from below $60 at the February lows, to over $80/share a few days ago as the market bet that China’s massive credit-deluge would benefit the heavy industrial company.
Moments ago we got the first glimpse at how the company officially did in Q1 and the restuls were mixed, with EPS of $0.67 missing expectations of $0.68. This was, of course, the non-GAAP number. GAAP was about a third lower, at just $0.46 per share, but as we know too well by now, it is only when Buffett releases his annual letter bashing non-GAAP adjustment that analysts actually care about the now record divergence between the two “earnings” numbers. Revenue of $9.46bn modestly beating expectations of $9.39bn, but was still a a drop of 26% from a year ago.
“While first-quarter results were about as we expected, sales and profit were well below the first quarter of 2015. Sales declined across the company with substantial reductions in construction, oil and gas, mining and rail. While many of the industries we serve are challenged, we remain focused on what we can control: the quality of our products, our market position, safety in our facilities and continued restructuring and cost reduction. In fact, our period costs and variable manufacturing costs in the quarter were nearly $500 million lower than the first quarter of 2015,” said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman.
And while everyone knows just how bad CAT’s present is, more attention was paid to the future, which was just as bleak after CAT cut the high end of its 2016 EPS guidance forecast from $4.00 to $3.70, almost in line with the consensus forecast of $3.61. It also cut both its top-end sales guidance from $44 to $42, while trimming its sales midpoint guidance to $41bn.
Sales and revenues in 2016 are expected to be in a range of $40 to $42 billion with a midpoint of $41 billion. The previous outlook was a range of $40 to $44 billion with a midpoint of $42 billion. The decline in the midpoint of the sales and revenues outlook range is a result of several factors that, while not individually large in the context of the outlook, collectively add up to about $1 billion. Those factors include lower transportation sales (rail, marine and the ending of production of on-highway vocational trucks), lower mining sales and weaker price realization than previously expected.
The profit outlook at the midpoint of the sales and revenues range is now $3.00 per share, or $3.70 per share excluding restructuring costs. The previous profit outlook was $3.50 per share, or $4.00 per share excluding restructuring costs at the midpoint of the previous sales and revenues outlook. The expected decline in sales and revenues and an increase in expected restructuring costs are the primary reasons for the decline in the profit outlook.
To be sure, this was Caterpillar which has been trading on hope for the future for the past 3 months:
We have seen recent increases in commodity prices, some signs of improvement in construction equipment in China and better order activity than we expected at bauma, the world’s leading trade fair for many of the industries we serve. While we are seeing a few positive signals, other parts of our business remain challenged. As a result, we have lowered the midpoint of the outlook for 2016 sales and revenues about 2 percent.
Restructuring costs are now expected to be about $550 million in 2016, up $150 million from the previous outlook. The decision to end production of on-highway vocational trucks is the primary reason for the increase in restructuring costs.
“While many of the industries we serve are challenged today, we’re looking ahead and investing for the future. We’re investing substantially in R&D, driving forward on our Lean journey, continuing implementation of Across the Table with our dealers and accelerating our digital strategy,” said Oberhelman.
One notable feature of Q1: after buying back $400mm shares in Q1 last year, in the current quarter CAT finally stopped stock repurchases. As if it suddenly is worried that it may need all of its cash for the foreseeable future…
The stock was down -1.5% at last check after sliding as much as 3% after the announcement.
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