Mining helps drive profits for Komatsu and Caterpillar

September 11, 2023

Komatsu’s chief financial officer, Takeshi Horikoshi, said that the Japan-based heavy equipment maker is poised to deliver a bigger-than-expected earning boost of about $811 million after rising prices.

Demand for mining equipment has helped drive the profits. In an interview with Nikkei, Horikoshi said that following the April-June quarter, the operating profit boost from price hikes on construction and mining machines now looks likely to come in at more than 120 billion yen ($811 million) for the fiscal year ending March 2024.

Caterpillar has led the way on pricing. Nikkei reported that price increases gave Caterpillar earnings a $1.4 billion lift in the April-June quarter alone.

In August, Caterpillar Inc. said that strong demand for heavy machinery from construction and mining industries was expected to drive full-year operating margin near the top end of its prior forecast, sending its shares to a record high.

The company, seen as a proxy for global economic activity, also reported better-than-expected second-quarter earnings, as sales rose across all of its main businesses.

Demand for heavy equipment has been improving as the United States upgrades roads, railways and other transportation infrastructure under Biden Administration's $1 trillion package that was approved by the Senate and signed into law in 2021.

Rising spending by miners to meet demand for lithium and rare-earth minerals has also lifted sales of mining machinery.
"We now expect adjusted operating profit margins to be close to the top of the targeted range relative to the corresponding expected level of sales," Caterpillar CEO Jim Umpleby said during an investor call, Reuters reported.

The company had forecast an adjusted operating profit margin between 10-13 percent and 18-21 percent when it reported fourth-quarter results on Jan. 31.

Komatsu saw a 36.7 billion yen boost in the same period, which put it more than 30% of the way toward its initial full-year forecast of 116.8 billion yen.

This fiscal year, the downward earnings pressure from high materials costs is seen easing to 13.8 billion yen, compared with 118.2 billion yen a year earlier. Komatsu forecasts an operating profit ratio of 14.5 percent, close to the all-time high of 14.8 percent reached in the year ended March 2008.

While there are signs of weakness in general equipment used in jobs like homebuilding amid economic uncertainty and rising interest rates, mining machines remain strong. In July, Komatsu downgraded its demand outlook for seven main types of construction equipment from a 0-5 percent percent decline to a 5-10 percent decline, but left its guidance on mining equipment unchanged at a 0-10 percent increase.

“At this point, there is no indication that demand for mining equipment is slowing down,” Horikoshi said.

One earnings factor to watch is sales of parts and services for mining equipment.

Komatsu sells mining equipment directly instead of through distributors, making it easier to build long-term relationships with customers. This gives it room to increase orders for parts and services, which are more profitable than the machines themselves. Parts and services account for about 70 percent of sales in mining equipment.



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