"Caterpillar Reports Decline in Q1 Sales and Operating Profit Due to COVID-19 Impact"

[Asia Economy Reporter Eunmo Koo] Caterpillar's sales and operating profit both sharply declined in the first quarter of this year. The decrease in demand due to the novel coronavirus disease (COVID-19) and the increased burden of fixed costs have weighed on the company's performance, and it is expected that the impact of COVID-19 will be fully reflected in the second quarter results.

On the 2nd, KB Securities reported that Caterpillar's first-quarter sales this year were $10.6 billion, down 21.0% from the same period last year; operating profit was $1.4 billion, down 36.4%; and GAAP net income was $1.1 billion, down 42.0%. While sales and operating profit met consensus estimates, they recorded a sharp decline compared to the same period last year.

By business segment, construction equipment sales were $4.3 billion, down 26% year-on-year, while energy and transportation grew 3% to $4.3 billion. Mining equipment and financial services recorded $2.1 billion and $700 million, down 21% and 15%, respectively. By region during the same period, North America recorded $5.0 billion (-24%), Asia-Pacific $2.3 billion (-27%), Europe, Africa, and the Middle East $2.4 billion (-7%), and Latin America $900 million (-21%). Most business segments saw a decline in sales, with the Asia-Pacific, North America, and Latin America regions experiencing the largest decreases in sales.

The decrease in demand due to COVID-19 and the increased burden of fixed costs are evaluated as factors weighing on performance. Dongik Jung, a researcher at KB Securities, explained, "As COVID-19 acts as a downward pressure on the global economy, reduced investments by major demand companies and increased dealer inventories directly affected Caterpillar's construction and mining equipment sales. Although the focus was on improving profitability through reducing operating expenses and lowering utilization rates, it was insufficient to cover the fixed cost burden caused by the decline in sales."

The second-quarter results are expected to fully reflect the impact of COVID-19. Researcher Jung explained, "This is because some facilities have been shut down in recent weeks due to decreased demand and government regulations." Meanwhile, Caterpillar repurchased $1.6 billion of its own shares and paid dividends in the first quarter of this year, an increase of 28% compared to the first quarter of last year.