The past, present and future do not look good for Caterpillar as low construction activity and oil prices hit earnings.
Caterpillar released the latest figures for Fourth-quarter 2014:
Sales and revenues of $14.244 billion, slightly down from $14.402 billion in the fourth quarter of 2013.
Profit per share $1.23, compared with profit per share of $1.54 in the fourth quarter of 2013.
Due to the strong dollar, U.S companies working in the weaker global economy are not being able to offer competitive deals. Additionally, oil price reductions, down 50% in the last 6 months, are affecting not just energy producers but the whole integrated industry; Caterpillar is being pommelled by this negative two-pronged attack and the quarterly results demonstrate the struggle. The company noted that, “Current oil prices are a significant headwind for Energy & Transportation and negative for our construction business in the oil producing regions of the world.”
As the global housing market slows down, especially in China; as sanctions on Russia start to hit the bottom-line of exporters to Putin’s economy; as commodity prices fall – expectations for the future are also grim for Caterpillar. As Caterpillar Chairman and Chief Executive Officer Doug Oberhelman says, “Prices for key mined commodities, particularly copper, coal and iron ore, declined in 2014. Weakening commodity prices, along with improved mine productivity, led to lower sales for Resource Industries. We haven’t seen evidence of an upturn in equipment orders yet—and sales of mining equipment remain depressed.”
Monday’s close of market showed the lowest share price for Caterpillar for 12 months as shares plummeted in the first minutes of trading to $79.47 and currently stand at $79.63. This extended the fall that Caterpillar had seen over the last 3 months where the firm had already lost $20 share price despite a management buy-back of stock worth $4.2 billion.
The future for Caterpillar is also negative according to the firm’s expectations of global economic growth: “We expect world economic growth to only improve modestly in 2015. The relatively slow growth in the world economy and continued weakness in commodity prices—particularly oil, copper, coal and iron ore—are expected to be negative for our sales. We expect sales and revenues in 2015 to be about $50 billion.”
A major part of Caterpillar’s maintenance package to keep the company afloat is its restructuring activities, undertaken in the last two years and “designed to lower our long-term cost structure.” More are anticipated for 2015: “In total, we expect the cost of these restructuring actions in 2015 to be about $150 million or about $0.15 per share. Our profit outlook for 2015 is about $4.60 per share, or $4.75 per share excluding restructuring costs.”
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