Caterpillar (CAT) Q2 2016 earnings summary

Executive summary

• Q2 sales and revenues fell 16% YoY to $10.342B; diluted EPS was $0.93, or $1.09 excluding restructuring, versus $1.31 and $1.40, respectively.

• Results exceeded expectations; cost reductions partly offset weak demand, and decremental operating profit pull-through beat the target range.

Financial highlights

• Q2 consolidated profit was $550M versus $802M; operating profit was $785M versus $1.333B, with restructuring costs of $139M versus $86M.

• Sales volume and mix reduced profit by $905M and price realization by $233M; period and variable costs added $670M, while other income and expense added $156M.

• H1 revenue was $19.803B versus $25.019B; operating profit was $1.279B versus $3.035B, and consolidated profit was $821M versus $2.047B.

• H1 period and variable cost reductions totaled $1.144B, including $794M in period costs and $350M in variable costs; the full-year target was >$2B.

Outlook and guidance

• FY2016 sales and revenues were forecast at $40.0B–$40.5B; EPS outlook was $2.75, or $3.55 excluding forecast restructuring costs of $700M.

• H2 sales and revenues were projected at $20.45B versus H1 actual of $19.80B; adjusted EPS was forecast at $1.82 versus $1.73 in H1.

• H2 sales expectations included slightly higher Resource Industries sales and higher, mostly seasonal, Energy & Transportation sales; Construction end-user demand was expected flat, with dealer inventory cuts reducing sales.

• Dealer inventories were expected to decline in H2, leaving year-end inventories below 2015; Solar sales were forecast to fall ~10% from 2015.

• Competitive pricing pressure was expected to continue, with H2 YoY price realization comparisons improving versus H1; no 2016 upturn was expected in mining, oil and gas, or rail.