Manufacturers hit a wall as coronavirus saps demand
Caterpillar, Harley and 3M are among companies idling production and cutting costs
Major U.S. manufacturers said some closed plants may never reopen and new product introductions could be delayed, after the coronavirus pandemic slashed demand for everything from motorcycles to industrial paint.
Caterpillar Inc. said Tuesday that revenue fell by a fifth in the first quarter from a year earlier. Harley-Davidson Inc. said retail sales of its motorcycles slumped around the world in the quarter. 3M Co. said it would furlough workers and idle some factory lines outside its booming N95 mask business, a sign of the broad economic malaise affecting even companies with a hot product.
“The impact of Covid-19 on our business has been significantly more severe and chaotic than any cyclical downturn we had envisioned,” Caterpillar CEO Jim Umpleby said on a conference call.
The hit to the companies’ earnings was lighter than some analysts expected. Shares in Caterpillar rose 1.8% to $117.31 (U.S.), while shares in 3M climbed 3.7% to $159.34 and shares in Harley rose 11% to $20.90.
But executives offered a dark outlook for a sector that was already faltering before the coronavirus crisis sucked demand out of the economy and hobbled plants and supply chains. Caterpillar, 3M, Harley and other companies have suspended their financial guidance for the year.
Big chunks of the U.S. industrial base remain closed as part of the effort to contain the virus. Other factories are closed due to declining demand or parts shortages. Caterpillar and 3M said a quarter of their factories are offline. Harley, which idled assembly plants in mid-March, said it is restarting some production. The Milwaukee-based company also said, though, that it was reconsidering when to introduce some new models it is counting on to draw new customers as a result of the worsening economic outlook. Nearly two-thirds of its U.S. dealers remain closed.
“We have challenges to address that have become more apparent in this crisis, including the high level of complexity across the organization that needs to be minimized ” Jochen Zeitz, Harley’s acting CEO, said on a call.
Some factories may not come back online. Caterpillar said it was considering closing plants in Germany.
Manufacturers said the economic fallout from the pandemic has followed the spread of the virus. Demand first dropped in China earlier this year and then spread to Europe, mostly acutely in Italy, executives said. Demand in the U.S. started to plummet in midMarch. Manufacturing output in March fell 6.3% from the prior month, according to the Federal Reserve, the biggest drop since the end of World War II.
3M, which makes a range of products, said adjusted sales in the Americas region fell 20% in April as factories suspended production, dentists cut back on operations and office managers bought fewer supplies for workforces now at home.
Caterpillar said it expects the current quarter to be the weakest for the global economy. “With the general economic uncertainty, we did see people defer buying machines,” Caterpillar finance chief Andrew Bonfield said in an interview.
Manufacturers said they were cutting back on investments this year to save cash. 3M said it would cut capital spending this year to about $1.3 billion; it had previously planned to spend up to $1.8 billion.
Paint maker PPG Industries Inc. said it would spend up to $250 million on capital investments this year, down from $413 million in 2019.
“Never before have we experienced a crisis as broad as the Covid-19 pandemic,” PPG Chief Executive Michael McGarry said on a call.
Harley said it would restrict spending and preserve cash, including by suspending share buybacks and slashing its shareholder dividend to 2 cents a share for the second quarter from 38 cents for the first quarter.
Harley reported more than $1.09 billion in quarterly motorcycle-related revenue, down from $1.19 billion a year earlier though better than analysts expected. Profit fell to $69.7 million from $127.9 million in the first quarter last year.
Caterpillar reported a firstquarter profit of $1.09 billion compared with $1.88 billion in the same quarter a year earlier. Caterpillar said its adjusted earnings were $1.60 a share. Analysts had forecast adjusted earnings of $1.69 a share.
3M’s revenue grew 2.7% to $8.08 billion in its first quarter, while profit rose 45% to $1.29 billion. The company posted adjusted earnings per share of $2.16, above the $2.03 expected by analysts.