Caterpillar Reports Q3 2016 Results & 2017 Expectations

October 26, 2016



Caterpillar announced Tuesday its profit per share of $0.48 for the third quarter of 2016, a 49 percent decrease from $0.94 per share in the third quarter of 2015. Excluding restructuring costs, profit per share was $0.85, down 19 percent from $1.05 per share in the third quarter of 2015.  Third-quarter 2016 sales and revenues of $9.2 billion were down 16 percent from $11.0 billion in the third quarter of 2015.

“Economic weakness throughout much of the world persists and, as a result, most of our end markets remain challenged.  In North America, the market has an abundance of used construction equipment, rail customers have a substantial number of idle locomotives, and around the world there are a significant number of idle mining trucks,” said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman. 

"However, there were a few bright spots this quarter.  Both the construction industry and our machine market position improved in China.  Most commodity prices, while low, seem to have stabilized.  Parts sales have increased sequentially in each of the last two quarters.  Our machine market position and quality remain at high levels and our work on lean and restructuring are continuing to help us lower costs.

“I’m pleased with how Caterpillar has responded and our team’s incredible focus on reducing costs and pulling through profit despite sluggish end markets.  In the third quarter, despite a $1.8 billion decline in sales and revenues, our operating profit pull through was significantly better than our target range.  Lower variable manufacturing costs of $234 million and lower period costs of $420 million enabled us to offset much of the negative impact from a weak sales environment and continue investment in products and digital capabilities,” said Oberhelman. 

Cat's full-year outlook for 2016 sales and revenues is about $39 billion, and profit is $2.35 per share, or $3.25 per share excluding restructuring costs.  The outlook does not include potential mark-to-market gains or losses related to pension and OPEB plans, which are likely to significantly impact full-year 2016 results. 

The previous outlook for 2016 expected sales and revenues to be in a range of $40.0 to $40.5 billion.  Restructuring costs in 2016, which were expected to be about $700 million, are now forecast to be about $800 million, due to asset write downs recognized in the third quarter.

Caterpillar's preliminary outlook for 2017 is that sales and revenues will not be significantly different than 2016.  The balance of risk, particularly during the first half of the year, is likely on the negative side.  We are, however, encouraged that most commodity prices important to our business have improved from the lows earlier in 2016.  Should commodity prices show relative stability and move higher in 2017, it is reasonable to expect that our business would respond, and we could see a more positive second half.  Our preliminary outlook for 2017 is based on our expectation that world economic growth will remain subdued at close to 2.5 percent – similar to the past few years.

“While we are seeing early signals of improvement in some areas, we continue to face a number of challenges.  We remain cautious as we look ahead to 2017, but are hopeful as the year unfolds we will begin to see more positive momentum,” said Oberhelman.

Cat sees positive signs in its market position in China and feels construction sales in Brazil and Russia have likely bottomed at very low levels in 2016. Challenges in 2017 include the risk of a slowing economy in China, the impact of Brexit in Europe, slow sales in Africa/Middle East, and low mining-related commodity prices.

Mr.Oberhelman announced is retirement earlier this month after 41 years with the company. Jim Umpleby will be Cat's new CEO.