Tag Archives: Caterpillar

Profit Up, Sales Down For Cat

Caterpillar is out with its second-quarter earnings report, and results were mixed — but still concerning around the company’s mining prospects.

Check out coverage from the Wall Street Journal, Forbes and Bloomberg.

From Bloomberg …

Mining companies have cut billions of dollars of capital spending amid surplus commodities production and a drop in prices for coal, iron ore and other metals. Caterpillar, which completed a string of mining-related acquisitions when the market was stronger, said today the industry remains “weak” and order levels are still low.

“We are seeing our customers defer maintenance,” Chief Executive Officer Doug Oberhelman said on a conference call discussing a decline in mining equipment sales. “The bottom is just behind us. Our numbers are minuscule in terms of ticking up, but they are ticking up.”

Caterpillar’s sales of mining machinery through dealers dropped 38 percent in the second quarter, with declines in every region except North America.

The “mining slump is the No. 1 headwind for Caterpillar,” Matt Arnold, a St. Louis-based analyst with Edward Jones, said by phone. “It won’t last forever, but the question is, how well can the company harness improvement in its other segments in the meantime?”

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Strong Earnings For Caterpillar

Some good news in Caterpillar’s first-quarter earnings report, which came out Thursday … but mining continues to struggle.

From the Reuters story

Caterpillar said it expected its sales to the global construction industry to increase 10 percent from 2013, up from a previously anticipated rise of about 5 percent.

But it cautioned that 2014 would be “another very tough year” for mining, another key market, and that its outlook reflected an anticipated drop of about 80 percent in sales of large mining trucks from the company’s peak year in 2012.

Adam Fleck, an analyst at Morningstar, said he was pleasantly surprised by the company’s “very solid cost control in construction in particular,” where operating margins continued to grow and “were at their highest quarterly level in several quarters”, even though they were typically more compressed than in the mining equipment category.

Fleck said the weakness in mining “wasn’t terribly surprising” and added that because that once-critical business accounted for just 17 percent of sales and 12 percent of operating profit in the first quarter, any continued weakness in the sector was “more of a headline risk than a true economic one.”

The better-than-expected report was tinged with caution. Chief Executive Officer Doug Oberhelman said the Peoria, Illinois-based company was watching several regions closely. Having visited China recently, he said the construction industry there was facing challenges.

Caterpillar was also concerned about the situation in Ukraine and Russia, he added.

The news followed stories this week of mixed dealer data and of reduced 2013 compensation for the CEO.

Of course, we’ll continue to watch the Caterpillar news closely, especially that from the mining front, given our (and Oak Creek’s) position as the center of Cat’s global mining operations.

With that in mind, I had a really positive meeting with several local Caterpillar officials on Friday, as part of my ongoing efforts to introduce myself to local elected official and business owners.

I look forward to keeping lines of communication open … and I have Caterpillar’s commitment to do the same. Having a strong partnership with our largest employer is a priority for me as mayor.

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Mixed Q4 Results For Caterpillar

Profits were up significantly for Caterpillar in the fourth quarter of 2013, and the company on Monday issued a positive earnings forecast for the new year … but there wasn’t a lot of positivity in the sector South Milwaukeeans watch closest.

Here is MarketWatch coverage. From it:

Oberhelman said the company sees some signs of improvement in the global economy, which should bode well for sales in its construction and power systems businesses. However, despite expectations that mining production will continue to rise, the company sees mining companies further reducing capital spending this year.

“As a result, we’re expecting sales in resource industries to decline modestly,” he said. “ We’ve already taken a number of restructuring actions to help improve our financial results and expect to take additional actions in 2014.”

Reduced spending by mining companies has taken a toll on sales of mining equipment, while Caterpillar’s sales of construction equipment have benefited from a recovery of home building in the U.S. The heavy-equipment maker has been closing plants that make mining equipment and laying off workers to reflect a sharp drop in demand in the sector.

Of course, I always worry about the “additional actions in 2014.” The Reuters story included this …

He characterized the moves as “tough decisions necessary to better position us down the road when economic conditions improve and our sales rebound.”

I guess we’ll have to wait and see what “tough decisions” are to come. Let’s pray the worst is over.

Also, check out coverage from the Chicago Tribune and Wall Street Journal.

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Caterpillar Getting $1.2 Million Tax Refund Payment From City, Other Government Entities

The Wisconsin Department of Revenue recently found Bucyrus/Caterpillar overpaid on its property taxes during four of the past five years – and, because of it, the city, school district and other taxing bodies owe the mining company more than $1.2 million.

The South Milwaukee City Council last week approved an agreement that will refund that tax overpayment in varying amounts over the next four years. The $1,265,135.22 will be sent to Caterpillar in these installments …

  • 2014 (for 2008 overpayment): $283, 073.78
  • 2015 (for 2009 overpayment): $540,205.17
  • 2016 (for 2010 overpayment): $278,535.58
  • 2017 (for 2012 overpayment): $163,320.69

Caterpillar dropped its 2011 appeal as part of the settlement agreement.

Of course, as one of several taxing entities, the city is only on the hook for a portion of each year’s repayment, ranging from more than $56,000 in 2017 to more than $187,000 in 2015. All in, the city’s liability here is more than $437,000. The schools, for instance, are liable for more than $521,000 over the four years, with lesser amounts owed by the county, MATC and state.

I voted for this agreement because it was clear this was the best we can get.

Besides allowing for the gradual repayment plan – vs. requiring the city to pay one lump sum this Jan. 1 — the agreement waives any interest payments Caterpillar could have sought. In exchange, the city waives its right to challenge any Cat property tax assessments between now and 2017. I absolutely do not like that fact – but the benefit of retaining that right seemed relatively small since it is the state, not the city, that assesses industrial properties.

How did this happen? It’s hard to say, since the state makes the final call on industrial assessments. So we are reliant on what they determine (and must pay the price if they are wrong).

The issue in question dates to the days of Bucyrus more than five years ago, when the company first disagreed with the assessments on property outside of the tax incremental financing district (south of Rawson Avenue). The state disagreed. Bucyrus disagreed again. The state disagreed again. And so it went until a court found in favor of Bucyrus (now Cat) … and the state determined the manufacturer had overpaid for those four years. The city was informed of this final decision recently.

I’m certain the downturn in the economy had an impact here. Industrial land and property across the country was simply not worth as much during the time frame in question.

So, what does this mean for the city budget and property taxes? To be determined. The city will use its cash reserves to make the 2014 payment when it’s due in September. After that, future refund amounts can be added to the tax levy and not be subject to any state levy limits. That means it’s likely future homeowner tax bills will be affected by the ongoing refund payments.

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More Bad News For Caterpillar … And Exploring The Local Impacts Of The Layoffs

The hits just keep coming for Caterpillar …

The company reported Wednesday that profits are down more than expected, and they cut their forecasts again. From Reuters:

In an interview with CNBC, Caterpillar Chairman and Chief Executive Doug Oberhelman said he was confident mining customers would begin ordering again but acknowledged he did not have any idea when that would happen.

“Long term, the mining customers I’ve talked to lately are very bullish – as am I, and I have to be based on what they tell me,” Oberhelman said.

“But I don’t know if long term is next year, five years or 10 years. But it will come back. We’ve seen it every single time.”

Meanwhile, local impacts of the recent layoffs continue. WUWM has a good piece on those impacts, with interviews with area business owners and impacted workers. From it:

Across the street, sits a bar named Powers on 10th. Owner Joe Braun says, if not for the layoffs, the place would be packed this evening.

“A lot of those employees were people who like to come here at night after second shift or there’s a group of guys who would come after first shift. My group of guys who would stop here from 3:00 to 6:00 at night went from 10 or 12 people down to about four people, so yeah, it affects a lot,” Braun says.

Braun says business dropped so profoundly this past summer that by August he had laid-off several employees. He says he can’t afford to hire anyone right now, so he tends bar.

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Report: Caterpillar Confirms More South Milwaukee Job Cuts

Update: The number is 115 in South Milwaukee alone, Fox 6 is reporting.

Not good news … here is the Milwaukee Business Journal story. From it …

Caterpillar spokeswoman Rachel Potts confirmed to The Business Journal that layoff notices went out to employees in South Milwaukee and Oak Creek as recently as last week, but she declined to indicate the types of positions and number of jobs cut.

Potts said the latest local layoffs are in addition to 260 production jobs cut in South Milwaukee during the summer.

“We stated in our second quarter financial results released in July that the company would be taking actions to reduce costs in the second half of the year,” Potts told The Business Journal. “The employee notifications in both Oak Creek/South Milwaukee and Decatur are included in those actions. We are not breaking out specific location totals or details.”

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Another Tough Quarter For Caterpillar; More Job Cuts Coming?

Caterpillar’s second-quarter earnings report was another ugly one, with profit declines and a cut in the company’s annual earnings projections.

Of bigger concern: The potential for more job cuts. From the story in USA Today:

He said the company already has temporarily closed factories and had rolling layoffs. “We’ve taken significant action already, and we will be taking additional cost reduction measures in the second half of 2013,” he said.

Caterpillar cut its global full-time work force by more than 10,000 people compared with the second quarter of last year. The company had 122,402 employees at the end of June. The temporary work force also dropped by 9,633 during the quarter.

Also, check out coverage from Reuters, Bloomberg and the Milwaukee Journal Sentinel.

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