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Caterpillar shares up on earnings beat; cuts 2016 outlook

Posted by: Admin | Posted on: July 26th, 2016 | 0 Comments

Caterpillar Inc (CAT.N) reported better-than-expected second quarter earnings on Tuesday, lifting its shares, but the heavy machinery maker also lowered its full-year forecast amid sluggish demand in mining and other industries.

Caterpillar said global uncertainty persists, and the recent vote in Britain to leave the European Union and the attempted coup in Turkey have heightened risks, especially in Europe.

A weakened global economy, combined with persistent political uncertainty, kept sales of new machinery sluggish. Sales fell 16 percent to $10.34 billion from a year ago.

“We’re not expecting an upturn in important industries like mining, oil and gas and rail to happen this year,” Chief Executive Officer Doug Oberhelman said in a statement.

Caterpillar shares, part of the Dow Jones industrial average .DJI, rose 1.7 percent.

The company’s $1.09 in earnings per share, excluding restructuring costs, was better than analysts’ expectations of 96 cents, but below a revised $1.40 a year ago.

Despite better-than-predicted earnings per share, Caterpillar lowered its full-year sales forecast for the second time this year.

The world’s largest construction and mining equipment maker, lowered its full-year 2016 sales outlook to a range of $40 billion to $40.5 billion, from $40 billion to $42 billion.

Caterpillar expects earnings of $2.75 per share, or $3.55 excluding restructuring costs, from $3.00, or $3.70 excluding restructuring costs.

At the same time, Caterpillar raised estimated expenses for restructuring during 2016 to $700 million, from $550 million.

“Our sense is that investors will continue to worry that (second half 2016) forecasts are still a stretch as revenue and pricing trends will both need to improve to hit targets,” Jefferies analyst Stephen Volkmann wrote in a research note.

In 2015, Caterpillar announced at restructuring plan that would cut more than 10,000 jobs and consolidate or close manufacturing facilities through 2018. So far, the company has reduced its global full-time and flexible workforce by 13,900 to 100,000 employees.

Oberhelman told CNBC Tuesday he expects more restructuring during 2017 and beyond, with the majority occurring in the company’s mining business.

“A three-percent global economic growth would add jobs for us,” Oberhelman said.

Caterpillar said its order backlog at the end of the second quarter was $11.3 billion, down $3 billion from the previous year. The company said, although oil prices have stabilized and improved since the beginning of 2016, it was not clear whether this would drive increased demand for its machinery.

The company said commodity prices “appear to have stabilized, but at low levels.”

Caterpillar reported second-quarter net profit of $550 million or 93 cents per share, down from a revised $802 million, or a revised $1.31 per share a year earlier.

Tough global economic times have weighed on large industrial companies such at Scotch tape and Post-it maker 3M (MMM.N). The Minnesota-based company also cut its full-year sales forecast, citing slow global economic growth.

Multi-industry manufacturing giant General Electric (GE.N) affirmed its 2016 forecast on Friday, but weak demand for new oil, gas and transportation equipment and a 16-percent decline in new orders caused concern for investors.

(Reporting By Meredith Davis in Chicago; additional reporting by Nick Carey; Editing by Nick Zieminski)

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