Caterpillar to Buy Back $1.5 Billion in Shares From Citibank -- Update

By Bob Tita And Tess Stynes 

Caterpillar Inc. said Tuesday that it agreed to buy back $1.5 billion of its shares from Citibank in an accelerated stock-repurchase transaction.

The Peoria, Ill.-based maker of engines and heavy equipment said in its earnings announcement last week that it would repurchase $1.5 billion in shares during the third quarter of this year.

Chairman and chief executive Doug Oberhelman said the buyback from Citibank brings Caterpillar's share repurchases to about $2 billion this year.

The company also plans to build its own line of dump trucks at a plant in Texas and wind down an existing arrangement it has with engine maker Navistar International Corp. to build the trucks. The plan was previously reported by The Wall Street Journal.

Last week, Caterpillar reported its second-quarter profit fell 29% and said demand for mining equipment remains "severely depressed" while sales of equipment used in construction and oil exploration have also begun falling.

However, the company also left its profit forecast for the full year unchanged and said the cost cuts it already made have allowed it to keep its balance sheet strong enough to buy back more shares and raise dividends.

On Tuesday, Caterpillar said that through the end of the second quarter, the company has repurchased about $3 billion of its shares under a $10 billion stock-buyback plan authorized in January 2014. The buyback plan is set to expire at the end of 2018.

In an effort to boost truck sales, Caterpillar expects to begin assembling its own trucks at its plant in Victoria, Texas, in the first half of next year. The move could help Caterpillar more effectively leverage its reputation with the construction industry for high-quality machinery, because customers will know it is making the trucks. Building the trucks also would add work for the Texas plant at a time of falling demand for the construction excavators it was set up to manufacture.

Bringing the truck family into Caterpillar is expected to add roughly 200 jobs at the Texas plant, which opened in 2012 to assemble excavators that had been built in Japan and imported to North America. The plant will continue to produce hydraulic excavators, the company said in a news release Tuesday.

The Caterpillar-Navistar partnership was devised in 2009 with ambitious goals to market Caterpillar-branded trucks in several overseas markets through Caterpillar dealers. But the Navistar-built, Caterpillar-branded trucks haven't been a big hit with truck buyers. Sales of the three truck models have averaged about 1,000 total annually for the past three years.

Separately, Navistar said it would launch a new line of its own trucks starting early next year, leveraging shared technology and intellectual property from the venture with Caterpillar.

Both companies "will have the opportunity to leverage certain joint intellectual property, collaborate with suppliers and utilize licensing agreements moving forward," Navistar said in a news release.

Navistar said it plans to release additional details about its planned truck line in coming months.

Write to Bob Tita at [e-mail] and Tess Stynes at [e-mail]

Subscribe to WSJ: http://online.wsj.com?mod=djnwires