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Caterpillar's October Sales Drop of 16% Worst in 5 Years

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Mining and equipment behemoth, Caterpillar Inc. 's CAT woes appear to be unending as the company reported a 16% decline in its global retail sales for the three months ending Oct 2015, the biggest monthly decline since Feb 2010. The company, which is considered the bellwether of economic activities, is facing its worst patch with sales growth in the red for 35 consecutive months due to the crash in commodity prices, soft mining demand and the slowdown in China. Caterpillar's shares fell 0.43% on the news and closed at $70.02 yesterday.

Year-to-date, the company's sales have dropped by an average 12%. So far in 2015, the previous worst performances were witnessed in January and June, wherein sales of each month declined 14%. The sales graph seemed to have reached a plateau with the 11% declines over the past three months but the October performance has dragged the graph down. Caterpillar had last suffered sales decline for a 19-month stretch, spanning from Oct 2008 to Apr 2010 due to the global recession.

As per Caterpillar's October sales report, overall sales performance was dragged down by a 36% slump in Latin America. Sales in Asia Pacific dipped 28% while in EAME and North America it declined 13% and 8% respectively.

Overall sales in Resource Industries, which continues to bear the brunt of weak mining spending due to lower commodity prices, were down 25%. Asia/Pacific led the pack with a 37% decline, while EAME was down 33% followed by 22% drop in Latin America. North America was down 10%.

Sales in Construction Industries were down 14% year over year, mainly hit by Latin America (41%) which was followed by Asia/Pacific (25%). Sales in North America and EAME were down 9% and 3%, respectively.

Sales in the Energy & Transportation segment fell 27%, mainly due to a 56% plunge in the Transportation sector. Sales in the Oil & Gas sector declined 34% followed by the Industrial segment which dipped 21%. The Power Generation sector, however, increased 3%.

In the third quarter, Caterpillar's revenues declined 19% year over year to $10.96 billion due to unfavorable currency impact along with lower volumes. Adjusted earnings dropped 56% to 75 cents per share. For 2015, the company maintained its revenue guidance of $48 billion but lowered earnings per share guidance to $4.60.

With the 5% decline in revenues apprehended for 2016, the company is looking at the fourth consecutive year of decline, as never seen before in its nine-decade long operations. This disappointing guidance is due to weak economic growth in the United States and Europe. Also, U.S. construction activity is being impacted by low infrastructure investment, continued headwinds from oil and gas, slowdown in China, recession in Brazil and lower commodity prices.

Moreover, recently, Caterpillar hinted at continued slowdown in the mining sector in China. Caterpillar believes that China's demand for hydraulic excavators will hit the 23,000 range in 2015 compared to sales of 112,000 during the peak year of 2010. This clearly suggests that the days when Caterpillar was riding the waves of heightened demand in China, is still far away.

Caterpillar currently carries a Zacks Rank #4 (Sell). Some better-ranked stocks in the industrial products sector are CUI Global, Inc. CUI , Albany International Corp. AIN and Codexis, Inc. CDXS . All of these stocks carry a Zacks Rank #1 (Strong Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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