Why Caterpillar’s CEO Seems Undeterred by Yearly Sales Declines



Caterpillar’s earnings in 2Q16

Caterpillar (CAT), the world’s largest manufacturer of construction (XHB) and mining (PICK) equipment, released its 2Q16 earnings before the Market opened on July 26, 2016. The operating performance in the earnings release relates to the quarter that ended on June 30.

Caterpillar’s earnings release resulted in positive price action of ~5.2%, and the stock closed at $82.75 on July 26.

In 2Q16, Caterpillar reported diluted EPS (earnings per share) of $1.09, compared to estimates of $0.96. The company’s 2Q16 EPS reflected a decline of 22.1% over 2Q15’s diluted EPS of $1.40. The decline in diluted EPS was due to across-the-board declines in operating margins and sales, which led to a 22.6% drop in net income.

In relative terms, the declines in construction equipment sales were modest at 7.8%. Segments that serve the energy and mining end markets witnessed sales declines of 21% and 29%, respectively.

Among Caterpillar’s competitors in the machinery space, AGCO (AGCO) is scheduled to declare its 2Q16 earnings on August 4, 2016, for the quarter that ended on June 30. Deere & Company (DE) is slated to release its 3Q16 earnings on August 19 for the quarter ended on July 31.

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Management commentary

On the company’s recent quarterly performance, Doug Oberhelman, Caterpillar’s chair and CEO, said, “I’m pleased with our financial performance and focus on our long-term strategy given the difficult economic and industry environment we’re facing.”

Oberhelman added, “In what is likely to be our fourth down year for sales and revenues, we’re proud of what we’re accomplishing – our machine market position has increased, including in China, product quality continues to be at high levels, and the safety in our facilities is world class.”


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