By Andrew Tangel and Bob Tita
Caterpillar Inc., the world's largest maker of heavy machinery,
said Thursday it broke a four-year streak of declining sales and
signaled optimism about most of its construction and mining
markets.
While the Deerfield, Ill.-based manufacturer didn't offer a
revenue forecast for 2018, executives said they expect sales to
continue their upswing this year.
"The global economy is the strongest it has been in several
years, with nearly every region of the world expected to grow in
2018," Chief Financial Officer Brad Halverson told Wall Street
analysts.
Annual revenue jumped 18% to $45.5 billion in 2017, following
four consecutive years of weak sales of Caterpillar's iconic yellow
bulldozers, mining trucks and other equipment.
Caterpillar reported a loss in the fourth quarter, however, as
it took a one-time charge related to changes to the U.S. tax code
signed into law by President Donald Trump in late December. Much of
the charge stemmed from a mandatory tax on stockpiled overseas
profit, which at the end of 2016 totaled $16 billion. Earnings
excluding the tax charges and other items topped analysts'
expectations.
The manufacturer said the largest increase in sales came from
North America amid growth in demand for its heavy machines and
aftermarket parts. About half of its sales growth in the
Asia/Pacific region was attributed to China, due to increased
building construction and infrastructure investment.
Caterpillar told investors it would benefit in the long term
from the new, lower U.S. corporate tax rate, a greater ability to
access overseas cash and a more equal playing field between it and
foreign competitors. Caterpillar said it expected an effective tax
rate of 24% this year, down from 28% in 2017.
Mr. Halverson said in an interview the company wasn't planning
to alter its tax-reduction plan involving a Swiss subsidy as a
result of the tax law. Federal agents raided Caterpillar's
headquarters and two other locations last year in a probe focused
on taxes and exports. The company hasn't been accused of wrongdoing
and has said it believes its tax position is correct.
Asked Thursday whether the new tax law would help resolve
Caterpillar's tax dispute, Chief Executive Jim Umpleby said: "It's
an ongoing discussion with the government. We're cooperating, and
we hope to get to a resolution in an expeditious manner."
Caterpillar had $16 billion in overseas profit at the end of
2016. Mr. Halverson suggested the company use some repatriated cash
for share buybacks and dividends, as well as funding its
business.
Under Mr. Umpleby, Caterpillar has shifted its focus to
profitable growth, rather than only increasing revenue, and placed
less emphasis on short-term results. Caterpillar reported a 15%
operating margin in 2017, up from 5% the previous year.
"We're really trying to focus on the long term here," said Mr.
Umpleby, who took over as CEO at the start of 2017.
Overall for the fourth quarter, Caterpillar reported a loss of
$1.3 billion, or $2.18 per share, compared with a loss of $1.17
billion, or $2 a share, a year ago. On an adjusted basis, which
strips out the impact of the tax charge and other factors, the
company earned $2.16 a share, higher than analyst expectations.
Revenue rose 35% in the quarter to $12.9 billion. Analysts
expected $11.98 billion. In 2017, revenue increased to $45.5
billion.
The company added 4,800 jobs in the U.S. last year, a shift
following years of deep cuts in its labor force. Caterpillar said
its domestic workforce rose to 50,500 employees, up from 45,700 at
the end of 2016.
Caterpillar shares were up slightly in midday trading Thursday
to $168.62.
Another U.S. manufacturer, 3M Co., also reported upbeat results
Thursday, saying fourth-quarter sales increased 9%, aided by
expanding industrial activity globally and strong sales growth
overseas, particularly in Asia. After years of lackluster sales
growth, 3M is now racking up robust sales increases from its
renewed focus on its electronics-and-energy business, whose
customers include makers of semiconductors, data centers,
automotive electrification and energy grids.
"These investments are paying off," Chief Executive Inge Thulin
said Thursday.
The St. Paul, Minn.-based maker of Post-it Notes, Scotch tape
and Ace bandages raised its 2018 profit forecast, on the
expectation of lower U.S. income taxes, to a range of $10.20 to
$10.70 a share, up from $9.60 to $10 a share.
The new federal tax law also took a toll on 3M net income, which
fell 55% in the quarter as the company recorded expenses of $762
million to comply with the new code. But overall for the fourth
quarter, 3M earned $523 million, or 85 cents a share, compared with
$1.15 billion, or $1.88 a share, a year earlier.
Shares of 3M rose 2.5% to $253.87.
Austen Hufford contributed to this article.
Write to Andrew Tangel at Andrew.Tangel@wsj.com and Bob Tita at
robert.tita@wsj.com
(END) Dow Jones Newswires
January 25, 2018 15:23 ET (20:23 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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