Caterpillar Reports First-Quarter Results

PEORIA, Ill., April 23, 2015 /PRNewswire/ -- Caterpillar Inc. (NYSE: CAT) today announced first-quarter 2015 profit per share of $1.81, an increase from profit per share of $1.44 in the first quarter of 2014.  The first quarter of 2015 included a negative impact of $0.05 per share for restructuring costs, compared with $0.17 per share in the first quarter of 2014.  Excluding restructuring costs, profit per share was $1.86 in the first quarter of 2015, up from $1.61 per share in the first quarter of 2014.

First-quarter sales and revenues were $12.702 billion, down about 4 percent from first-quarter 2014 sales and revenues of $13.241 billion.

First-quarter 2015 profit included a pre-tax gain of $120 million, or about $0.14 per share, from the sale of Caterpillar's remaining interest in the company's former third party logistics business.  Caterpillar sold a majority interest in the business in 2012, and divested the remaining interest in the first quarter of 2015.

"We delivered solid results for the first quarter of this year, including higher profit than in the first quarter of 2014.  Our focus on operational improvement, including lean manufacturing and cost management, is helping in what is a tough time for some of our important cyclical businesses.  We continue to execute on improving safety, quality, inventory turns, delivery performance and market position," said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman.

"The first quarter wasn't without challenges.  Sales and revenues were off about 4 percent from the first quarter of last year, mining remained weak and construction was down in most regions.  On the plus side, Energy & Transportation turned in another great quarter, although we don't expect this to continue due to the oil-related portion of the business," added Oberhelman.  

The balance sheet remained strong in the first quarter and Machinery, Energy & Transportation (ME&T) operating cash flow was more than $1 billion.  Consistent with Caterpillar's priorities for cash deployment, we repurchased $400 million of common stock in the first quarter of 2015 under the $10 billion repurchase authorization that was approved by the Board in 2014.  Given our expectation for cash flow and capital expenditures in 2015, we currently expect to continue to repurchase stock this year.  However, our stock repurchase plans are always subject to the company's cash deployment priorities and can change based on business and market conditions.

2015 Outlook
The 2015 outlook for sales and revenues remains unchanged at about $50 billion.  However, the outlook for profit per share has improved slightly.  We now expect that profit per share will be $4.70, or $5.00 per share excluding restructuring costs.  The previous outlook for profit per share was $4.60, or $4.75 excluding restructuring costs.  The expectation for restructuring costs is now about $250 million, $100 million higher than the previous outlook with the increase primarily related to facilities that produce mining products.

"We had a solid first quarter, which led to raising the profit outlook for 2015.  However, we continue to face headwinds and uncertainty in 2015, and our outlook for the year reflects that.  We expect sales and profit in each of the remaining three quarters of 2015 to be lower than the first quarter.  We expect sales for oil applications to decline starting in the second quarter, and from a profit perspective, the first quarter included the gain on the sale of our remaining interest in the logistics business and that won't repeat.  The first quarter is usually the most seasonally favorable of the year for costs, and we don't expect the rest of the year to be as favorable.  In addition, we expect some increase in research and development expense as we go through the year," Oberhelman said.

"We're working to improve what we can control so that when our cyclical businesses recover, we will be ready to respond quickly, benefiting our company, our customers and our stockholders," Oberhelman said.

Notes: 

• Glossary of terms is included on pages 17-18; first occurrence of terms shown in bold italics.
• Information on non-GAAP financial measures is included on page 19.

About Caterpillar:
For 90 years, Caterpillar Inc. has been making sustainable progress possible and driving positive change on every continent.  Customers turn to Caterpillar to help them develop infrastructure, energy and natural resource assets.  With 2014 sales and revenues of $55.184 billion, Caterpillar is the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives.  The company principally operates through its three product segments - Construction Industries, Resource Industries and Energy & Transportation - and also provides financing and related services through its Financial Products segment.  For more information, visit caterpillar.com.  To connect with us on social media, visit caterpillar.com/social-media.

Forward-Looking Statements
Certain statements in this Release relate to future events and expectations and are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.  Words such as "believe," "estimate," "will be," "will," "would," "expect," "anticipate," "plan," "project," "intend," "could," "should" or other similar words or expressions often identify forward-looking statements.  All statements other than statements of historical fact are forward-looking statements, including, without limitation, statements regarding our outlook, projections, forecasts or trend descriptions.  These statements do not guarantee future performance, and we do not undertake to update our forward-looking statements.

Caterpillar's actual results may differ materially from those described or implied in our forward-looking statements based on a number of factors, including, but not limited to: (i) global and regional economic conditions and economic conditions in the industries we serve; (ii) government monetary or fiscal policies and infrastructure spending; (iii) commodity price changes, component price increases, fluctuations in demand for our products or significant shortages of component products; (iv) disruptions or volatility in global financial markets limiting our sources of liquidity or the liquidity of our customers, dealers and suppliers; (v) political and economic risks, commercial instability and events beyond our control in the countries in which we operate; (vi) failure to maintain our credit ratings and potential resulting increases to our cost of borrowing and adverse effects on our cost of funds, liquidity, competitive position and access to capital markets; (vii) our Financial Products segment's risks associated with the financial services industry; (viii) changes in interest rates or market liquidity conditions; (ix) an increase in delinquencies, repossessions or net losses of Cat Financial's customers; (x) new regulations or changes in financial services regulations; (xi) a failure to realize, or a delay in realizing, all of the anticipated benefits of our acquisitions, joint ventures or divestitures; (xii) international trade policies and their impact on demand for our products and our competitive position; (xiii) our ability to develop, produce and market quality products that meet our customers' needs; (xiv) the impact of the highly competitive environment in which we operate on our sales and pricing; (xv) failure to realize all of the anticipated benefits from initiatives to increase our productivity, efficiency and cash flow and to reduce costs; (xvi) additional restructuring costs or a failure to realize anticipated savings or benefits from past or future cost reduction actions; (xvii) inventory management decisions and sourcing practices of our dealers and our OEM customers; (xviii) compliance with environmental laws and regulations; (xix) alleged or actual violations of trade or anti-corruption laws and regulations; (xx) additional tax expense or exposure; (xxi) currency fluctuations; (xxii) our or Cat Financial's compliance with financial covenants; (xxiii) increased pension plan funding obligations; (xxiv) union disputes or other employee relations issues; (xxv) significant legal proceedings, claims, lawsuits or government investigations; (xxvi) changes in accounting standards; (xxvii) failure or breach of IT security; (xxviii) adverse effects of unexpected events including natural disasters; and (xxix) other factors described in more detail under "Item 1A.  Risk Factors" in our Form 10-K filed with the SEC on February 17, 2015 for the year ended December 31, 2014.

First-Quarter 2015 Highlights

• First-quarter sales and revenues were $12.702 billion, down 4 percent from the first quarter of 2014.
• Restructuring costs were $36 million in the first quarter of 2015, with an after-tax impact of $0.05 per share.
• First-quarter 2015 profit includes a pre-tax gain of $120 million on the sale of the remaining interest in our former third party logistics business.
• Profit per share was $1.81 in the first quarter of 2015 and $1.86 per share excluding restructuring costs. Profit in the first quarter of 2014 was $1.44 per share and $1.61 per share excluding restructuring costs.
• ME&T operating cash flow was $1.042 billion in the first quarter of 2015, compared with $1.878 billion in the first quarter of 2014.
• ME&T debt-to-capital ratio was 37.1 percent, compared with 37.4 percent at the end of 2014.

2015 Outlook

• The 2015 sales and revenues outlook of about $50 billion remains unchanged.
• Our revised outlook for 2015 profit per share is $4.70, or $5.00 per share excluding restructuring costs of about $250 million. This is compared to our previous profit per share outlook of $4.60, or $4.75 per share excluding restructuring costs of about $150 million.
• We expect ME&T capital expenditures in 2015 to be about the same as 2014 capital expenditures of about $1.6 billion.

CONSOLIDATED RESULTS

Consolidated Sales and Revenues

Consolidated Sales and Revenues Comparison
First Quarter 2015 vs. First Quarter 2014

To access this chart, go to http://www.caterpillar.com/en/investors/quarterly-results.html for the
downloadable version of Caterpillar 1Q 2015 earnings.

The chart above graphically illustrates reasons for the change in Consolidated Sales and Revenues between the first quarter of 2014 (at left) and the first quarter of 2015 (at right).  Items favorably impacting sales and revenues appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting sales and revenues appear as downward stair steps with dollar amounts reflected in parentheses above each bar.  Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.

Sales and Revenues
Total sales and revenues were $12.702 billion in the first quarter of 2015, compared with $13.241 billion in the first quarter of 2014, a decline of $539 million or 4 percent.  The decrease was primarily due to the unfavorable impact of currency, resulting from the weakening of the euro and Japanese yen, and lower sales volume.  These unfavorable impacts were partially offset by slightly favorable price realization.  Sales declined for both new equipment and aftermarket parts.

Sales declined in all regions except North America.  In EAME, sales declined 11 percent primarily due to lower end-user demand and the unfavorable impact of currency, as our sales in euros translated into fewer U.S. dollars, partially offset by the favorable impact of changes in dealer inventory.  Asia/Pacific sales declined 13 percent, primarily due to lower end-user demand for construction equipment and the unfavorable impact of currency as our sales in Japanese yen translated into fewer U.S. dollars.  Sales decreased 19 percent in Latin America, primarily due to lower end-user demand for construction equipment.  In North America, sales increased 9 percent, primarily due to the favorable impact of changes in dealer inventory and higher end-user demand primarily for oil and gas applications and construction equipment.

Sales decreased in Construction Industries and Resource Industries and were about flat in Energy & Transportation.  Construction Industries' sales decreased 7 percent, primarily due to lower end-user demand.  Resource Industries' sales declined 9 percent, primarily due to lower end-user demand in mining.  Financial Products' segment revenues were about flat.

Consolidated Operating Profit

Consolidated Operating Profit Comparison
First Quarter 2015 vs. First Quarter 2014

To access this chart, go to http://www.caterpillar.com/en/investors/quarterly-results.html for the
downloadable version of Caterpillar 1Q 2015 earnings.

The chart above graphically illustrates reasons for the change in Consolidated Operating Profit between the first quarter of 2014 (at left) and the first quarter of 2015 (at right).  Items favorably impacting operating profit appear as upward stair steps with the corresponding dollar amounts above each bar, while items negatively impacting operating profit appear as downward stair steps with dollar amounts reflected in parentheses above each bar.  Caterpillar management utilizes these charts internally to visually communicate with the company's Board of Directors and employees.  The bar entitled Other includes consolidating adjustments and Machinery, Energy & Transportation other operating (income) expenses.

Operating profit for the first quarter of 2015 was $1.527 billion, compared with $1.398 billion in the first quarter of 2014.  The improvement was primarily due to lower restructuring costs, improved price realization and the favorable impact of currency, partially offset by lower volume and increased selling, general and administrative and research and development (SG&A and R&D) expenses.  The impact of lower sales volume was partially offset by a favorable mix of products.

Restructuring costs of $36 million in the first quarter of 2015 were related to several restructuring programs across the company.  In the first quarter of 2014, restructuring costs were $149 million, primarily related to a workforce reduction at the Gosselies, Belgium, facility.

The favorable impact of currency was due to the strengthening of the U.S. dollar in relation to most currencies.  Due to our sizable manufacturing presence outside of the United States, the stronger U.S. dollar resulted in a favorable impact to operating profit.  About half of the favorable currency impact was due to the Japanese yen, as we are a net exporter from Japan.

Manufacturing costs were about flat as lower material costs were nearly offset by the unfavorable impact of cost absorption, as inventory decreased in the first quarter of 2015, compared to an increase in the first quarter of 2014.

SG&A and R&D expenses increased primarily due to stock-based compensation expense and higher spending for new product introduction programs.  (See Q&A #5 for more information on stock-based compensation expense.)

Other Profit/Loss Items

• Other income/expense was income of $157 million, compared with income of $54 million in the first quarter of 2014.  The favorable change was primarily due to a gain of $120 million on the sale of the remaining 35 percent interest in our former third party logistics business. 
• The provision for income taxes for the first quarter of 2015 reflects an estimated annual tax rate of 28.5 percent compared with 29.5 percent for the first quarter of 2014, excluding the item discussed below.  The decrease is primarily due to a more favorable expected geographic mix of profits from a tax perspective in 2015. 

The provision for income taxes in the first quarter of 2014 also included a charge of $22 million related to prior years' taxes and interest.

Global Workforce
Caterpillar's worldwide, full-time employment was 113,322 at the end of the first quarter of 2015, compared with 116,579 at the end of the first quarter of 2014, or a decrease of 3,257 full-time employees.  The flexible workforce increased 772, resulting in a total decrease in the global workforce of 2,485.  The decrease was primarily the result of restructuring programs.

Construction Industries' sales were $4.695 billion in the first quarter of 2015, a decrease of $369 million, or 7 percent, from the first quarter of 2014.  The decrease in sales was due to lower volume in all regions except North America and the unfavorable impact of currency, primarily from the euro and the Japanese yen, partially offset by improved price realization.  Sales of new equipment decreased, and sales of aftermarket parts were about flat. 

• Sales volume declined primarily due to lower deliveries to end users.
• Price realization improved in all regions.

Sales decreased in all regions except North America. 

• In Asia/Pacific, the sales decline was primarily due to lower sales in China and Japan.  In China, the lower sales primarily resulted from continued weak construction activity.  Sales in Japan declined due to a weaker Japanese yen, as sales in yen translated into fewer U.S. dollars and lower end-user demand due to weaker economic conditions.
• Sales declined in EAME primarily due to the unfavorable impact of changes in dealer inventories, as dealers increased inventory more during the first quarter of 2014 than in the first quarter of 2015.  In addition, the impact of currency was unfavorable as sales in euros translated into fewer U.S. dollars.
• Decreases in Latin America were primarily related to the absence of a large government order in Brazil that occurred during the first quarter of 2014 and continued weak construction activity.
• Sales increased in North America primarily due to the favorable impact of changes in dealer inventories, as dealers increased inventory more during the first quarter of 2015 than in the first quarter of 2014.  In addition, price realization was favorable and end-user demand increased modestly.  Although still below prior peaks, construction-related activity continues to improve.

Construction Industries' profit was $740 million in the first quarter of 2015, compared with $688 million in the first quarter of 2014.  The improvement was mostly due to the favorable impacts of price realization and currency, primarily from the Japanese yen, partially offset by lower volume.

Resource Industries' sales were $1.928 billion in the first quarter of 2015, a decrease of $195 million, or 9 percent from the first quarter of 2014, primarily due to lower sales volume, unfavorable price realization resulting from a competitive pricing environment and the unfavorable impact of currency primarily due to the euro.  While sales declined for both new equipment and aftermarket parts, the decline for new equipment was more significant.

The sales volume decrease was primarily related to lower end-user demand, partially offset by the favorable impact of changes in dealer inventories.  While dealers continued to reduce inventories during the first quarter of 2015, the reductions were less significant than in the first quarter of 2014.

Worldwide end-user demand continued to be weak and resulted in lower sales in all regions except North America.  Sales in North America were about flat as lower mining equipment sales were about offset by an increase in sales for quarry and aggregate equipment.

Commodity prices remained weak and mining customers continued to focus on improving productivity in existing mines and reducing their total capital expenditures as they have for the last several quarters.  As a result, both sales and new orders in Resource Industries continued to be weak.

Resource Industries' profit was $85 million in the first quarter of 2015, compared with $143 million in the first quarter of 2014.  The decrease was primarily the result of unfavorable price realization.  The impact of lower sales volume was about offset by a favorable mix of products.  Manufacturing costs were about flat as the unfavorable impact from cost absorption was about offset by lower material costs.  SG&A and R&D expenses were about flat as increases in new product introduction spending were about offset by cost cutting measures. 

Energy & Transportation's sales were $4.762 billion in the first quarter of 2015, or about flat with the first quarter of 2014.  The impact of higher sales volume and improved price realization were about offset by the unfavorable impact of currency.  Currency negatively impacted sales in all applications, primarily in EAME.  Sales decreases for industrial applications were about offset by increases for transportation applications.  Sales of power generation and oil and gas applications were about flat. 

• Industrial – Sales decreased in EAME and were about flat in all other geographic regions. In EAME, sales decreased primarily due to lower demand for engines used by original equipment manufacturers for most industrial applications.
• Transportation – Sales increased in Asia/Pacific due to a large locomotive project and were about flat in all other regions of the world.
• Power Generation – Sales were about flat in all regions.
• Oil and Gas – Sales were about flat, as increases in North America were about offset by declines in Latin America. In North America, sales increased primarily due to higher end-user demand for equipment used in well servicing and gas compression applications. In Latin America, sales were lower due to the absence of a large project.

Energy & Transportation's profit was $986 million in the first quarter of 2015, compared with $833 million in the first quarter of 2014.  The improvement was primarily due to higher sales volume, including a favorable mix of products, and improved price realization.  Manufacturing costs were about flat, as lower material costs were nearly offset by the unfavorable impact of cost absorption.

Financial Products' revenues were $795 million in the first quarter of 2015, a decrease of $22 million, or 3 percent, from the first quarter of 2014.  The decline was mostly due to lower average financing rates primarily in North America, and lower average earning assets in Asia/Pacific, EAME and Latin America, partially offset by higher average earning assets in North America.

Financial Products' profit was $227 million in the first quarter of 2015, compared with $240 million in the first quarter of 2014.  The unfavorable change was primarily due to a $10 million decrease in gains on sales of securities at Caterpillar Financial Insurance Services and a $7 million decrease in net yield on average earning assets, partially offset by a $15 million decrease in the provision for credit losses at Cat Financial. 

At the end of the first quarter of 2015, past dues at Cat Financial were 3.08 percent, compared with 2.17 percent at the end of 2014.  The increase in past dues compared to year end 2014 was primarily due to the performance of the Latin American and mining portfolios and seasonality impacts.  At the end of the first quarter of 2014, past dues were 2.44 percent.  Write-offs, net of recoveries, were $12 million for the first quarter of 2015, compared with $38 million for the first quarter of 2014.

As of March 31, 2015, Cat Financial's allowance for credit losses totaled $392 million, or 1.38 percent of net finance receivables, compared with $401 million, or 1.36 percent of net finance receivables at year end 2014.  The allowance for credit losses as of March 31, 2014, was $373 million or 1.25 percent of net finance receivables.

Corporate Items and Eliminations
Expense for corporate items and eliminations was $669 million in the first quarter of 2015, about flat with the first quarter of 2014.  Corporate items and eliminations include: corporate-level expenses; restructuring costs; timing differences, as some expenses are reported in segment profit on a cash basis; retirement benefit costs other than service cost; currency differences for ME&T, as segment profit is reported using annual fixed exchange rates, and inter-segment eliminations. 

Corporate items and eliminations were about flat as lower restructuring costs were about offset by increased stock-based compensation expense.  (See Q&A #5 for more information on stock-based compensation expense.)

2015 Outlook
Overall, our view of world economic growth in 2015 is about the same as we expected in the outlook provided with our 2014 year-end financial release in January of 2015.  We expect world GDP growth in 2015 of about 2.7 percent, up from about 2.6 percent in 2014.  We expect that the improvement will come from developed countries and that economies in developing countries will, overall, grow at a rate slightly below their growth rate in 2014.

Despite our outlook for modest improvement in global economic growth versus 2014, significant risks and uncertainties remain that could temper growth in 2015.  Political conflicts and social unrest continue to disrupt economic activity in several regions; in particular, the Commonwealth of Independent States, Africa and the Middle East.  The Chinese government's push for structural reforms is slowing growth, and the ongoing uncertainty around the direction and timing of U.S. fiscal and monetary policy actions may temper business confidence.

The outlook for sales and revenues remains unchanged at about $50 billion for 2015, down from $55.2 billion in 2014.  The primary factors contributing to the decline from 2014 are largely the same as we expected three months ago:

• Lower oil prices are expected to negatively impact sales of reciprocating engines within Energy & Transportation and Construction Industries' sales in oil-producing countries around the world, including regions of the United States that rely on oil revenues to drive economic growth;
• The currency translation impact of a stronger U.S. dollar on our sales outside the United States;
• Weaker mining sales;
• Lower sales in our rail business, primarily for locomotives; and
• Lower sales in China, primarily for construction equipment.

While the outlook for sales and revenues is unchanged, our expectation for profit has improved.  We now expect that 2015 profit per share will be $4.70, or $5.00 per share excluding restructuring costs.  The previous outlook for 2015 profit per share was $4.60, or $4.75 excluding restructuring costs.  The expectation for 2015 restructuring costs is now about $250 million—about $100 million more than the previous outlook with the increase primarily related to facilities that produce mining products.  Profit per share in 2014 was $5.88, or $6.38 excluding restructuring costs.