Caterpillar will raise machine prices due to tariffs; reports record 2Q profits, ups 2018 outlook
Despite reporting a 24-percent gain in sales and revenues, a record near doubling of profit-per-share and an improved outlook for the rest of 2018, Caterpillar has announced that it will be raising machine prices in response to increased materials costs caused by new tariffs on steel and aluminum.
Cat surpassed Wall Street estimates and took a big step toward dispelling concerns over whether the new tariffs, enacted earlier this year by President Trump, would significantly impact operations. Those tariffs and another headwind – rising freight costs just as the company ramps up production – continue to present challenges that Caterpillar insists it can offset.
The metal tariffs are expected to have a $100 million to $200 million impact on material costs in the second half of the year. Caterpillar also expects supply chain challenges to continue to pressure freight costs.
However, the company intends to largely offset these headwinds through mid-year price increases and using what it calls the “Operating and Execution Model” to further drive operational excellence and structural cost discipline.
“Favorable price realization in the quarter also was enough to offset our increases in manufacturing costs, but we are seeing some increases in costs in the manufacturing space,” Joe Creed, interim chief financial officer, says.
“Most notably, steel costs are driving materials costs up, and then we’re also seeing elevated freight expense as we’re ramping up demand across our factories and supply base trying to keep up with our strong markets.”
The team’s “disciplined approach to cost control” is allowing the company to bring much of its profit to the bottom line, he notes.