Amid the growing concerns of the sluggish pace of global
) recently revealed its plan of shutting down parts of its Decatur,
IL facility that manufactures large trucks, due to the fall in
demand. Operations will cease for a week in November and entire
month of December.
The company, however, confirmed that the layoffs will be
temporary and decided against divulging the number of to-be
The facility closure follows Caterpillar's trimming its 2015
guidance in the wake of weaker-than-expected growth in the global
economy. Factoring in modest, tepid economic growth through 2015
and a less likely scenario of a worldwide recession, Caterpillar
expects to generate revenues in the range of $80 to $100 billion in
2015 and earnings per share in the range of $12 to $18 per share.
Caterpillar had earlier estimated earnings between $15 and $20 per
However, for 2012 the company remains firm on its guided record
sales of $68 billion to $70 billion and EPS forecast at $9.60.
Caterpillar will discuss its 2013 expectations when it releases its
quarterly earnings this month. The year 2013 is expected to be
similar to 2012 with respect to worldwide economic growth. However,
better growth is expected in 2014.
Caterpillar had been persistently adding production capacity for
many of its products. However, with the growing concerns and
uncertainty about the pace of world economic growth, short term
economic risks in the U.S, the Eurozone debt crisis, and the
slowdown in China's growth,
Caterpillar has now opted to be cautious toward acquisitions and
investments in expansion. The company remains hopeful that
construction activity in the emerging markets will witness modest
improvement. The company plans to remain focused on its cost
control measures and continue to invest in research and
Caterpillar's plans to expand in the mining and China is
currently under pressure as mining companies are revisiting and
trimming their capital expenditures plans following the slowdown in
economic expansion in China, the world's largest user of coal and
metals. Prices for coal and iron ore have dropped more than 20%
this year due to slowing growth in China and European debt
Among other miners,
) plans to cut its 2013 mining budget and
BHP Billiton Limited
) delayed an estimated $68 billion of projects. Approximately 70%
of spending in mines is for large trucks and thus the cutback
paints a grim picture for Caterpillar.
We thus maintain our Neutral recommendation on Caterpillar. The
recent loss of sales momentum, margin headwinds, negative impact of
the European debt crisis and a slowing Chinese economy remain
concerns. The quantitative Zacks #3 Rank (short-term Hold rating)
for the company indicates no clear directional pressure on the
stock over the near term.
Peoria, Illinois-based Caterpillar Inc. is the manufacturer of
construction and mining equipment, diesel and natural gas engines,
and industrial gas turbines. The company is one of the few leading
U.S. companies in an industry that competes globally from a
principally domestic manufacturing base.
Caterpillar operates two divisions - Machinery and Power Systems
(M&PS) and Financial Products. Caterpillar competes with the
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