Caterpillar announces less profit forecast and more job cuts

This Tuesday, Caterpillar Inc. (NYSE: CAT) announced that it doesn’t anticipate a rebound this year for its construction and mining equipment, taking into account that the company shrunk its profit forecast and warned of additional layoffs.

Caterpillar topped second-quarter profit and sales expectations. But the Peoria, Ill.-based company sees no end in sight to the four-year-long slide in sales from falling prices for oil and mined commodities and lower demand from key foreign markets.

 “We’re not expecting an upturn to happen this year,” Doug Oberhelman, Chairman and Chief Executive, said today.

Caterpillar has been aggressively slashing its costs in the wake of lower sales. The company said it reduced second-quarter expenses by $670 million from a year earlier. But the company also expects business downsizing expenses to total about $700 million this year, up from an earlier forecast of $550 million.

Caterpillar said it would cut an unspecified number of additional jobs later in the year on top of the more than 10,000 jobs the company already plans to eliminate through 2018. Caterpillar’s work force has fallen by 20%, or more than 30,000 jobs, since the end of 2012. The company also intends to close or consolidate up to 20 plants by the end of 2018.

Caterpillar trimmed its full-year profit outlook to about $2.75 a share, or $3.55, without restricting costs. The company had previously forecast $3 a share, or $3.70 without restructuring. The company narrowed its revenue range for this year to $40 billion to $40.5 billion from $40 billion to $42 billion.

Over all for the quarter, the company reported a profit of $550 million, or 93 cents a share, down from $802 million, or $1.31 a share, a year earlier. Excluding restructuring costs, earnings per share were $1.09. Revenue slid 16% to $10.34 billion. Analysts were expecting 96 cents a share with $10.1 billion of revenue.

On the one hand, Caterpillar said anemic economic growth along with geopolitical events that undermine customer confidence such as the Brexit referendum in Britain, the hostile rhetoric from the U.S. presidential campaigns and the attempted coup in Turkey are holding down global machinery demand.

“It’s not any one thing. All of that contributes,” said Mike DeWalt, Vice President, during a conference call with analysts. “We’re a little more negative on the world economy. We have sluggish economic growth throughout world, but not enough to drive growth in our end markets.”

Second-quarter sales of machinery and engines dropped 17% from a year ago to $9.65 billion, with the most pronounced weakness occurring in the mining equipment business, where sales sank 29%. Operating profit from machinery and engines plunged 44% to $678 million.

On the other hand, company executives said recent growth in U.S. housing and infrastructure construction is helping to stabilize demand for earth-moving equipment in North America, but added that equipment inventories remain elevated and dealers are facing market pressure to offer discounts on machinery that erode profits.

“It’s a pretty tough pricing environment in construction,” said Mr. DeWalt.

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