How Caterpillar Earnings Overcame Strong Currency Headwinds

Caterpillar Inc. (NYSE: CAT) reported its first-quarter results Thursday before the market opened as $1.86 in earnings per share (EPS) and $12.7 billion in revenue. That compares to Thomson Reuters consensus estimates of $1.35 in EPS and $12.46 billion in revenue. In the same period of last year, it posted EPS of $1.61 and revenue of $13.24 billion.

The company slightly updated its guidance for 2015. Expectations in revenue of $50 billion remained the same while profit per share was moved up $0.25 to $5.00. There are consensus estimates of $4.67 in EPS and $49.54 billion in revenue.

In terms of its segments, Machinery, Energy & Transportation (ME&T) had revenues of $11.96 billion for the first quarter, which was down 4% from the previous year. Also during the first quarter, Financial Products revenues totaled $741 million, down 1% from the previous year.

This decrease was primarily due to the unfavorable impact of currency, which was the result of the weakening of the euro and Japanese yen, as well as lower sales volume. These unfavorable impacts were partially offset by slightly favorable price realization.

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In the first quarter, the balance sheet remained strong and ME&T operating cash flow was just over $1 billion. At the same time, Caterpillar repurchased $400 million of common stock under the $10 billion repurchase authorization that was approved by the board in 2014.

ME&T debt-to-capital ratio was 37.1%, compared with 37.4% at the end of 2014.

Doug Oberhelman, chairman and CEO of Caterpillar, said:

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.

In terms of the company’s outlook, Oberhelman said:

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.

Shares of Caterpillar closed Wednesday up 1.1% at $84.87. Following the release of the earnings report, shares were up 4.7% at $88.85 in premarket trading Thursday. The stock has a consensus analyst price target of $82.70 and a 52-week trading range of $78.19 to $111.46.

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