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Caterpillar beats analysts; lower earnings projections for second quarter

Caterpillar beats analysts; lower earnings projections for second quarter

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The global COVID-19 pandemic took an expected sharp sales and profit toll on Caterpillar Inc. during the second quarter.

The company reported Friday a 71.7% decline in net income to $458 million.

However, Caterpillar well exceeded analysts’ lowered earnings per share forecasts.

Diluted earnings were 84 cents a share, down from $2.83 a year ago. Adjusted earnings were $1.03 a share when excluding a 19-cent earnings charge related to pension obligations.

The average earnings forecast was 66 cents by nine analysts surveyed by Zacks Investment Research. Analysts typically do not include one-time gains and charges in their forecasts.

Caterpillar is considered a manufacturing bellwether for the global economy, particularly as it relates to the energy sector. The company has a railroad-equipment production plant in Winston-Salem with 160 employees at last count.

Sales fell 30.7% in the quarter to just under $10 billion. “The decline was due to lower sales volume driven by lower end-user demand and the impact from changes in dealer inventories,” the company said.

Meanwhile, expenses dropped 24.6% to $9.21 billion.

Caterpillar said its financial results for the remainder of 2020 “will be impacted by continued global economic uncertainty due to the COVID-19 pandemic.”

Caterpillar’s initial fiscal 2020 earnings forecast was a range of $8.50 to $10 a share. It was at $2.83 for the first half of 2020.

As of mid-July, Caterpillar said nearly all its primary production facilities continued to operate.

“This continues to fluctuate as conditions warrant, including the pace of economic recovery and the potential for additional COVID-related temporary shutdowns,” the company said.

Jim Umpleby, Caterpillar’s chairman and chief executive, said in a statement that “we are well positioned for these challenging times because of the successful execution of our strategy.”

“We will adjust production as conditions warrant and are prepared to respond quickly to any positive or negative changes in customer demand.”

All three of Caterpillar’s main divisions had revenue decreases in the second quarter: construction industries was down 37% to $4.05 billion; energy and transportation, which includes the Winston-Salem plant, was down 24% to $4.14 billion; and resource industries was down 35% to $1.82 billion.

Sales in North America were down 40% to $4.39 billion, while sales in Asia fell 17% to $2.55 billion.

CFRA analyst Elizabeth Vermillion responded to the report by lowering her 12-month share price target by $4 to $156.

She raised her fiscal 2020 earnings forecast by 16 cents to $5.38.

“Year-to-date, dealers have reduced inventory by $1.4 billion, requiring Caterpillar to lower production, posing a strong headwind to the topline,” Vermillion said.

“We expect better balance in 2021, allowing Caterpillar more visibility into its growth pipeline. Demand will likely remain soft in 2020, though we expect power generation, mining, and residential construction to recover fastest.”

rcraver@wsjournal.com

336-727-7376

@rcraverWSJ

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