Caterpillar says Wall Street 'too optimistic' on 2017 profit estimate

December 1, 2016 11:44 AM EST

The CAT logo is seen on back of a Caterpillar excavator machine at a work site in Detroit, Michigan January 25, 2013. REUTERS/ Rebecca Cook


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By Meredith Davis

(Reuters) - Caterpillar Inc (NYSE: CAT), the world's largest construction and mining equipment maker, said on Thursday analysts' earnings expectations for 2017 were "too optimistic" as oil prices remained volatile.

Analysts on average were expecting 2017 revenue of $38 billion and earnings of $3.25 per share, according to Thomson Reuters I/B/E/S.

While the company said analysts' average revenue estimate of $38 billion for 2017 was a reasonable midpoint expectation, it added that it sees significant operating profit headwinds for the coming year.

These include an estimated drop of about $1 billion in sales and $500 million to $600 million more in short-term employee incentive compensation than in 2016. Additionally, Caterpillar Financial profit is expected to be down about $100 million.

The company stopped short of giving any additional guidance on full-year 2017 earnings per share. (http://bit.ly/2gDe4x3)

But Caterpillar executives said the company sees no significant rebound in order activity in mining or oil and gas, and North American rail continues to be weak.

The executives said Caterpillar was on track for a $2 billion of period and variable cost reduction for the full year of 2016. A restructuring plan announced in 2015 will continue through 2018.

The company said it was encouraged by the potential of a U.S. infrastructure bill, tax reforms, commodity prices and the recent announcement by the Organization of the Petroleum Exporting Countries (OPEC) to curb production.

U.S. President-elect Donald Trump has pledged to spend $1 trillion over 10 years on building infrastructure, providing a much needed boost to the beaten-down construction equipment and primary metals companies. Caterpillar said that while the possibility of an U.S. infrastructure bill was encouraging, the company expects it to have little impact in 2017.

Oil prices soared more than 10 pct on Wednesday as some of the world's largest producers agreed to curtail production for the first time since 2008 in a bid to support prices.

"They are cutting guidance, and now beginning to talk about earnings numbers that put a cloud of uncertainty over whether they will support their dividend," said Morningstar analyst Kwame Webb. "But the stock just keeps moving higher. Its a real head scratcher."

The company's shares were halted briefly as Amy Campbell, director of investor relations and Denise Johnson, resource industries president, gave a presentation at a conference on Thursday.

Shares resumed trading and were up about 0.5 percent to $96.04 in afternoon trade. The company's shares have jumped 14 percent since Trump's surprise election victory.

Caterpillar, considered a bellwether for global industrial demand, cut its 2016 revenue outlook for the second time in October, hurt by weak demand for new heavy machinery partly due to slowing global economic growth and weak oil prices.

(Reporting by Meredith Davis in Chicago, additional Reporting by Ankit Ajmera in Bengaluru; editing by Saumyadeb Chakrabarty and Tom Brown)



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