Caterpillar in 2015: Why It's Fallen 25%

CAT Total Return Price Chart
CAT Total Return Price Chart

CAT Total Return Price data by YCharts .

In response, Caterpillar has worked hard to try to restructure itself . In September, the company said it would implement job cuts of 4,000 to 5,000 positions, as well as offering voluntary retirement programs to a host of other workers. Facility consolidation and operational streamlining should produce further cost savings, but Caterpillar investors have to keep in mind that the company has already made substantial moves to reduce expenses in the past. Nevertheless, Caterpillar hopes that doing this now will put the company in a much stronger position when things do get better.

Caterpillar: Sales and Earnings

Revenue, Past 12 Months $50.23 billion
1-Year Revenue Growth (9.2%)
Net Income, Past 12 Months $2.95 billion
1-Year Net Income Growth (25%)

Data source: S&P Capital IQ .

What Caterpillar sees ahead

One thing that Caterpillar has going for it during this business cycle is that its capital situation is much stronger than it was in the aftermath of the financial crisis. Back in 2009, crude oil had fallen to similar levels, but Caterpillar's balance sheet wasn't as strong as it is now. In addition, Caterpillar's diversification has given it options to pursue that rivals like Joy Global can't. For Joy Global, an emphasis on coal mining has been disastrous because of the monumental price declines in that industry, and Joy won't be able to bounce back as quickly as Caterpillar unless economic strength happens to center on the areas in which Joy has focused. Eventually, pent-up demand will have to be satisfied, and Caterpillar thinks that it can survive long enough to take full advantage of the next equipment-replacement cycle when it starts up.

Caterpillar investors can't count on the commodities market to cooperate in helping to boost the equipment-maker's prospects, as commodity-exposed customers are likely to remain reluctant to make purchases as long as they can. The big question is when the global economy will start moving in the right direction again, but until that happens, it could be difficult for Caterpillar to generate much upward momentum.

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