Caterpillar Inc. (IW 500/24) forecast 2017 revenue and earnings that trailed analysts’ estimates as signs of a recovery in mining and energy have yet to translate into a rebound in demand for the company’s signature yellow machines.
Revenue will be in a range of $36 billion to $39 billion, with a midpoint of $37.5 billion, the company said. That is less than the $38.1 billion average of 16 analysts’ estimates compiled by Bloomberg, and indicates annual revenue may fall for a fifth consecutive year.
Earnings excluding restructuring costs will be $2.90 a share at the midpoint, compared with the analysts’ estimate of $3.08.
The company said the availability of used construction equipment will weigh on sales in 2017, and it expects capital spending among miners to be flat.
In December, Caterpillar said analysts were overestimating its earnings prospects amid continued weakness in some markets. Any benefit from President Donald Trump’s infrastructure-spending plan and tax reforms probably wouldn’t be seen until some time in 2018, the company said on January 26.
The lowered outlook “is happening because business still stinks,” said Stephen Volkmann, an analyst for Jefferies LLC. “The recovery is certainly not happening yet.”
Investors have made the company’s shares the best performer on the Dow Jones Industrial Average index in the past 12 months, rewarding management for cost cuts intended to mute the effects of a drop in demand from miners and energy explorers.
“We continue to execute in a challenging economic environment and are focused on improving operating margins, profitability and shareholder returns,” CEO Jim Umpleby said.“While we see signs of positive activity in some of our key end markets, the overall economic environment remains challenging.”
In late October, Caterpillar cut its 2016 sales forecast for a fourth time and warned that 2017 wouldn’t be much better as its customers defer orders amid sluggish growth. On January 26, the company reported 2016 revenue of $38.5 billion, down from $47 billion a year earlier.
Annual revenue of $37.5 billion would be the lowest since the recession in 2009, according to data compiled by Bloomberg.
Commodities rebounded in 2016, with the Bloomberg Commodities Index rising for the first time since 2010 on signs of an improving U.S. economy and stabilizing growth in China. Higher commodity prices and better parts sales in each of the last three quarters, along with improvements in quoting and order activity in the fourth quarter, suggest mining-related sales may have bottomed, the company said.
The quarter marked the last as chief executive officer for Doug Oberhelman, who stepped down on Jan. 1. He invested almost $20 billion into research and development, capital spending and deals as the commodity industry expanded, only to see emerging markets slow and commodity prices in early 2016 touch the lowest in at least 25 years.
Oberhelman reorganized mining and energy segments, shutting down dozens of factories and cutting thousands of jobs. In early December, Oberhelman said because of tax changes and other policies proposed by Trump he would consider retaining jobs in the U.S. that would have otherwise been shifted abroad. Investors are waiting to see how Umpleby will steer the cost-cutting effort.
“They’re cleaning house,” Eli Lustgarten, an analyst at Longbow Securities, said in a telephone interview before the earnings report. “We’ll see how they follow it up with the changing of a guard happening in a transitioning environment. Can they make the transition now with the new management? And then the question is how do they prepare moving forward the rest of the decade?”
Excluding restructuring costs, fourth-quarter earnings were 83 cents a share, topping the 66-cent average estimate of analysts. Revenue in the quarter dropped 13% to $9.57 billion.
By Joe Deaux