April 22, 2016 / 11:57 AM / a year ago

Caterpillar cuts 2016 profit outlook, sees China improvement

Workers walk past Caterpillar excavator machines at a factory in Gosselies February 28, 2013. REUTERS/Eric Vidal

(Reuters) - Caterpillar Inc, the world’s largest maker of heavy machinery, on Friday lowered its 2016 sales and earnings outlook as steep declines in revenue from its construction, oil and gas and rail business segments hurt quarterly profit.

Caterpillar, which has seen demand for equipment used in the energy and mining industries hit hard by a drop in commodity prices, experienced lower sales in the first quarter across all regions. To help stem the slide, Caterpillar cut about 8,600 jobs and closed nearly 15 facilities so far as part of a restructuring plan announced in 2015.

Even so, Caterpillar said it is encouraged by improvement in demand for heavy machinery in China.

“Infrastructure projects are starting and for the first time in a few years, we’re seeing stronger demand from China,” said Caterpillar Chief Financial Officer Brad Halverson.

In fact, Chinese sales of construction equipment are up slightly year-over-year, the company said.

The Peoria, Illinois company now expects 2016 earnings per share at $3.00, or $3.70 per share excluding restructuring costs. The previous forecast was $3.50 per share, or $4.00 per share, excluding restructuring costs.

The company also trimmed its 2016 sales outlook range to $40 billion to $42 billion against a previous forecast $40 billion to $44 billion.

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

In the first quarter the company’s dealers said global retail machinery sales were down 13 percent, compared with the previous year.

PROFIT SLUMPS

Caterpillar reported operating income of $494 million, or 67 cents per share in the first quarter, down from a revised $1.70 billion, or $2.07 a share, a year ago. Analysts had expected earnings per share of 68 cents.

Including restructuring costs, Caterpillar earned 46 cents per share, compared with a revised $2.03 a year earlier. Revenue fell to $9.46 billion from $12.7 billion a year ago.

While all regions reported slumping revenue, the hardest hit was Latin America, where sales fell 43 percent, due to the area’s widespread economic weakness, a company statement said.

Caterpillar said while its cash flow has decreased from $1.04 billion to $218 million in the first quarter of 2016 due to lower profits, it is focused on maintaining its credit rating and dividend.

Reporting by Meredith Davis; Editing by W Simon and Meredith Mazzilli

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