Strength in mining business powers Caterpillar first-quarter results to record

Heavy-duty equipment maker tops estimates largely due to one-time tax gain, but the mining business does show better growth.

Caterpillar (NYSE: CAT) saw first quarter 2019 net income top analysts’ estimates as resurgent demand for coal and iron ore drove up results in the company’s mining segment.

The Deerfield, Illinois-based company reported first quarter net profit of $1.88 billion, up 13 percent from a year earlier.

Adjusted earnings per share of $2.94, excluding a one-time tax benefit, were better than the $2.83 per share consensus estimate. Revenue of $13.5 billion was up 5 percent from a year earlier.

Based on the one-time tax gain, the company increased its 2019 earnings outlook to $12.06 to $13.06 per share. But the outlook for adjusted earnings remained flat for 2019 at $11.75 to $12.75 per share.

Caterpillar’s mining equipment business saw the strongest growth for the quarter with year-over-year growth of 18 percent in revenue to $2.7 billion. Segment profit was up 52 percent to $576 million with margins improving 470 basis points to 21.1 percent for the quarter.

It said profit in the segment would have been stronger, save for “higher manufacturing costs, including increased material and freight costs and slightly higher warranty expense.” It did not elaborate on what its freight costs were.

Sales to customers in the Asia-Pacific region were up the most, rising 52 to $805 million.

The gains come as China’s huge demand for iron ore and coal is keeping those prices firm. Iron ore for delivery into China is up 40 percent to $94 per metric ton. Appalachian coal prices are up 25 percent to $77.30 per ton.

“Mining production levels and commodity market fundamentals remained positive, which supported higher sales. Higher demand levels for non-residential construction activities and quarry and aggregate operations also drove higher sales,” Caterpillar said in a release about the results.

Caterpillar’s construction equipment segment saw smaller growth of 3 percent with sales rising to $5.87 billion.

Only North American sales rose higher year-on-year, while unfavorable currency impacts and lower dealer inventories affected sales in other markets. It credited higher demand from road construction activities for the gains in North America.

Segment profit was essentially flat at $1.085 billion.

Energy and transportation revenues were also flat at $5.22 billion with segment profit down slightly to $838 million. The effect of a stronger U.S.  dollar offset gains in pricing and volumes.

In its energy segment, the timing of turbine project deliveries in North America also affected sales. But it did see higher shipments of large diesel reciprocating engine applications in all markets, except for Europe.

Caterpillar Inc. is a Fortune 100 corporation that designs, develops, engineers, manufactures, markets and sells machinery, engines, financial products and insurance to customers via a worldwide dealer network. It is the world’s leading manufacturer of construction and mining equipment, diesel and natural gas engines, industrial gas turbines and diesel-electric locomotives. The company principally operates through its three primary segments – Construction Industries, Resource Industries and Energy & Transportation – and also provides financing and related services through its Financial Products segment.