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Caterpillar credits cost-cutting for profit gains

July 24, 2014, 1:53 PM UTC
Caterpillar's 1st Quarter Profit Rises 45 Percent
ELMHURST, ILLINOIS - APRIL 24: Caterpillar earth moving equipment is displayed at Patten Industries on April 24, 2006 in Elmhurst, Illinois. Heavy equipment maker Caterpillar reported first-quarter earnings higher than forecasted at $840 million, up 45 percent from $581 million during the same period in 2005. (Photo by Scott Olson/Getty Images)
Photograph by Scott Olson — Getty Images

Caterpillar (CAT), a maker of construction and mining equipment, improved its profit margins and raised its earnings outlook for the second time this year as U.S. construction spending bounces back.

Earnings for the second quarter were up 8% annually to $1.57 a share, excluding one-time items, the company announced Thursday. The results surpassed the average analyst profit expectation of $1.52 a share, according the estimates compiled by Bloomberg.

Caterpillar also upped its annual earnings outlook to $6.20 a share from its previous estimate of $6.10.

“While we’d certainly like to see improvement in economies around the world, and more specifically, the mining industry, the stability that we’ve seen this year has helped,” Doug Oberhelman, Caterpillar’s CEO, said in a statement. ” Even though sales and revenues are relatively flat compared to last year, we’ve improved the bottom line with better execution and continued focus on costs.”

The improving margins are a credit to lower manufacturing costs and decreased research and development expenses, which were down nearly $500 million, said Oberhelman. Sales, meanwhile, have struggled, dropping 3% year-over-year to $14.2 billion and falling short of analysts’ expectations of $14.5 billion.

The lower expenses helped offset a weak quarter for Caterpillar’s resource industries, which include its struggling mining business. Revenue from its resource industry segment fell 29% compared to the year earlier quarter. Global mining operations have cut back on capital spending as coal and metal stockpiles remain high and prices low.

Caterpillar’s construction sales, which helped dampen the blow from a dragging mining industry, were up 11% with an 83% improvement in operating profit. The gains were boosted by overall improvement in U.S. construction spending, which was at a five month high in May, according to data from the Census Bureau.

The company said Wednesday that dealer sales of its machinery declined at a slower pace in June than in the three months through May. Sales declined 10% compared to a 12% drop in the prior three months.