Shares of Caterpillar drop 2.8% after Dow component reports 31% decline in revenue

Key Points
  • Caterpillar posted adjusted per-share earnings of $1.03 on revenues of $10 billion, both better than expected.
  • Still, the $10 billion in sales represented a 31% decrease compared with $14.4 billion the company reported a year earlier.
  • Caterpillar said the Covid pandemic caused dealers to cut inventories by about $1.4 billion in the quarter versus an increase of about $500 million a year earlier.

In this article

Caterpillar excavators are displayed for sale at the Whayne Supply Co. dealership in Louisville, Kentucky, Jan. 27, 2020.
Luke Sharrett | Bloomberg | Getty Images

Industrial machinery manufacturer Caterpillar said Friday that cost reduction and prioritized spending helped it offset a $1.4 billion decline in dealer inventories during the second quarter and post better-than-expected results. 

The Deerfield, Illinois-based equipment maker posted adjusted per-share earnings of $1.03 on revenues of $10 billion. Analysts were expecting revenue of just $9.38 billion for the quarter, according to the consensus from Refinitiv.

Though better than what analysts were expecting, $10 billion in sales represented a 31% decrease compared with the $14.4 billion the company reported in the second quarter of 2019.

Caterpillar's stock, a member of the Dow Jones Industrial Average, fell 2.8% during Friday's session following the results.

The company said a persistent decline in demand for its equipment as a result of the Covid-19 pandemic caused dealers to cut machinery and engine inventories about $1.4 billion in the three months ended June 30 versus an increase of about $500 million a year earlier.

It's for that reason that cost-cutting initiatives and spending austerity were so critical to the company's success in the second quarter, management said in a statement accompanying the financial results.

"We are well positioned for these challenging times because of the successful execution of our strategy," Caterpillar CEO Jim Umpleby said in a press release. "We are focused on employee safety and maintaining a competitive and flexible cost structure while continuing to invest in services and expanded offerings to better serve our customers. We will adjust production as conditions warrant."

Analysts have slashed expectations for Caterpillar's top and bottom lines as the coronavirus continues to weigh on capital spending and erodes dealers' demand for the manufacturer's equipment. 

The impact of the coronavirus was on full display in Caterpillar's financial results and appeared to track its progress in the second quarter based on geographic region.

North American construction sales, for example, fell 54% from a year earlier as builders postponed projects.

But in Asia and the Pacific, where the spread of the disease appears to be decelerating at a faster rate, construction sales fell just 10% on a year-over-year basis, far better than the 31% decline in Caterpillar's first-quarter results.

The company in April took on a new short-term credit facility of $3.88 billion that expires at the end of 2020, according to a filing at the Securities and Exchange Commission. Many U.S. manufacturers have sought similar short-term credit lines to secure their balance sheets amid the pandemic.

The company's board voted last month to maintain its quarterly dividend payment of $1.03 per share, payable to shareholders on Aug. 20.

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