National Post (National Edition)
Caterpillar sees housing boom leading 2021 sales recovery
Caterpillar Inc. fourth-quarter earnings beat analysts' expectations as reopening economies stoked demand for its signature yellow machines. The company said it expects stronger yearover-year sales this quarter, led by construction industries.
The world's biggest maker of mining and construction equipment posted adjusted fourth-quarter earnings of US$2.12 a share, according to a statement Friday. That compares with the US$1.45 average of analysts' estimates compiled Bloomberg. Sales also topped expectations, while still falling below a year earlier.
Caterpillar's stock is coming off its best quarter in three years in a bet on improving demand for machinery used in construction and infrastructure as economies recover from the coronavirus. A broad rebound in commodity markets may mean the return of customers in the metals and oil-exploration businesses after pandemic shutdowns crushed orders.
“Our expectations around the top line are for that to re-accelerate as we go into 2021,” Andrew Bonfield, Caterpillar's chief financial officer, said in a phone interview, referring to an improvement in sales. “Over 2021, we would expect recovery.” Bonfield said residential construction is “the bright spot.”
There are signs of buoyant demand in building and manufacturing. U.S. home construction starts rose in December to the best pace since late 2006, while Bloomberg Intelligence said China construction-machinery sales may reach a record high in 2021. China accounts for up to 10 per cent of Caterpillar's sales.
Meanwhile, orders placed with U.S. factories for business equipment rose in December for an eighthstraight month.
Higher commodity prices are encouraging miners to invest in new machinery.
Caterpillar's equipment sales fell across its three primary segments in the latest quarter, though the decline in retail sales slimmed to two per cent in December from 17 per cent in October.
Full-year revenue in 2020 was US$41.7 billion, down 22 per cent from 2019. The decline reflected lower end-user demand and dealers reducing their inventories by US$2.9 billion in 2020.
“Our fourth-quarter and full-year results reflect the team's agility in a challenging environment while executing our strategy for longterm profitable growth,” chief executive Jim Umpleby said in the statement. “We are well-positioned for the future and will emerge from the pandemic as an even stronger company.”
The company didn't offer any full-year profit guidance. On a conference call after the report, Umpleby cited “continued uncertainty” due to the pandemic.
Risks for the economic bellwether in 2021 include rising steel prices, continuing threats to mining activity from the pandemic and sharper competition in Asia.
CFO Bonfield said that the company has long-term contracts for its steel, and “at the moment we're still benefiting from those contracts.” There's a lag in steel-price cost increases, “so we are in a good place as we sit here today,” he said.
Caterpillar's shares fell one per cent on Friday. They have gained over 22 per cent since late October.
Umpleby said the company intends to revisit its current pause in share repurchases later this year. Share repurchases were suspended last year following the pandemic-induced business turmoil.
The company also plans to recommend an increase in dividend payout this year, Umpleby said.