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Caterpillar Warns Of Competitive Pressure In China

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Caterpillar is keeping an eye on its margins in China said CEO Jim Umpleby who talked to investors after the company released its Q2 results today.

Regional results from Asia-Pacific were down 7% from a year ago. The construction sales segment was hit hardest falling 22%. Tariffs and a slowing global economy are all having an impact, but so are local equipment manufacturers.

"[We] have some competitor pricing pressures from local competitors," Umpleby told analysts today.

"We're certainly taking steps to ensure our competitiveness long term in China. We're introducing a number of new GC [excavator] products that will help us compete as well. But again we are -- we feel good about our forecast there in China."

Caterpillar disappointed the markets with quarterly earnings below market expectations. Profits per share were $2.83 a share, up one penny from the same period a year ago.

Caterpillar stock was off 4.48% to $131.91 a share.

The company is forecasting modest sales growth due to a recovery in oil and gas, and dealers working through higher machine inventory levels.

After the Q1 was released, Umpleby took questions from analysts. Here are some key takeaways:

REGIONAL OUTLOOK

"Europe-Middle East-Asia is a mixed bag. Sales in Europe are projected to be steady, while Africa and the Middle East remain weak. Latin America continues to improve from very low levels."

COMMODITY PRICES REMAIN AT INVESTABLE LEVELS

"We expect demand for heavy construction as well as quarry and aggregate equipment to remain strong in Resource Industries this year. Most commodity prices remain at investable levels. Mining equipment sales continue to improve and large mining truck sales have further room for growth to reach their normal replacement levels. We continue to anticipate that miners will remain disciplined in our capital expenditures in these early stages of their multiyear recovery."

SERVICES ARE BIG

"Earlier this year, we announced a goal to double [machinery, equipment and transportation] service sales to $28 billion by 2026. Services increased customer value by improving asset utilization and availability, while reducing owning and operating costs."

DIGITIZATION

"We continue to invest to expand our digital capabilities enabling services growth and we remain on track toward our goal of one million connected assets by the end of the year."

MINE AUTOMATION

"Many of our meetings with mining customers these days include discussions around technologies like autonomy and automation and how they improve safety and productivity. We have recently been selected for three greenfield projects that will further grow our penetration of autonomy with mining customers in South America and Australia. More than 220 tracks have accumulated 50 million kilometers of autonomous driving in fleets already deployed. Our autonomous solutions are now being utilized by seven customers across 11 sites and three continents. We believe that we are at a tipping point for adoption of autonomy and mining.

"For example, this quarter we announced that we will be working with Rio Tinto to create a technologically advanced iron ore mine in Western Australia. We will supply and support mining machines, automation and enterprise technology systems for this project. Working closely with WesTrac, our local dealer, Rio Tinto plans to create an automotive mine operation using data analytics and integration to enhance safety, optimize production, use mining machine utilization and lower costs."

OUTLOOK FOR MINERS

[Comments from CFO Andrew Bonfield]

"I mean obviously mining we are only in the start of recovery phase and replacement cycle. There is a lot of potential still but there is to run as miners start actually bumping up CapEx. All commodities remain at investable levels so we do expect that to continue to improve as we look out as well."

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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