​Caterpillar sees continued commodity pain

Caterpillar has seen lowered results following continued depression in commodity and mining markets.

The machinery manufacturer has announced a drop in sales and revenues in the fourth quarter year on year, falling $158 million from $14.402 billion to $14.244 billion.

However its profits have been hit particularly hard, falling by 25 per cent year on year from $1.003 billion in the fourth quarter of 2013 to $757 million last year.

Despite globally slower mining markets the company only saw a slight drop in full year revenues for 2014, recording $55.184 billion, a dip from the 2013 levels of $55.656 billion.

Caterpillar chairman Doug Oberhelman explained that “weakening commodity prices, along with improved mine productivity, led to lower sales for [Cat’s] resource industries [division]; we haven’t seen evidence of an upturn in equipment orders yet – and sales of mining equipment remains depressed”.

Earlier this month the plummeting oil price also hit the company.

The manufacturer’s price dropped almost six per cent after J.P Moran downgraded its rating over its exposure to the oil and gas market.

Its fall was also in line with a slump in the Down Jones and the S&P 500.

It is believed that company’s interest in the oil and gas sector attributes as much as 15 per cent of its revenues, as Cat provides turbines, transmission, and engines for drilling and offshore rigs as well as aftermarket services.

“Our analysis suggests that since 2010 U.S. construction equipment demand has been strongly correlated with the expansion of fracking and, as a result, we would expect to see a slowdown in equipment demand in 2015,” J.P. Morgan stated.

“Finally, the stronger dollar may also weigh on [Caterpillar’s] competitiveness against its international competitors and, given that senior executive compensation is based partly on market share, we would expect pricing to come under increasing pressure as we go forward.”

Despite this, Caterpillar CEO Doug Oberhelman was optimistic, stating “overall we had many positives and a better year in 2014 than 2013”.

“Our emphasis on cost management, operational execution and cash flow helped us deliver better profit per share than both 2013 and the 2014 outlook we provided at the start of the year.”

Its other divisions, Machinery, Energy & Transportation (ME&T); Construction; and Energy & Transport (E&T) Cat saw an uplift, almost negating the drop recorded in its mining division.

Oberhelman explained that while the company is “disappointed we missed our profit outlook in the fourth quarter….2014 overall was a successful year as we continued to execute on the things we can control”.

Looking ahead he was less positive, stating “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.”

Oberhelman went on to state; “Current oil prices are a significant headwind for E&T and negative for our construction business in the oil producing regions of the world. In addition, with lower prices for commodities we’ve reduced our expectations for sales of mining equipment.”

To overcome these Caterpillar will look to additional restructuring activities, which will cost about $150 million.

Cat did not elaborate as to what these activities would entail.

Looking ahead for 2015 Cat sees lowered sales and revenues of about $50 billion, and a profit of $4.60 per share, or $4.75 per share excluding the aforementioned restructuring costs. 

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