Citing economic weakness and idle mining trucks around the globe coupled with an “abundance” of used construction equipment and idle locomotives in North America, Caterpillar reported another down period for earnings today.
With total sales falling 16 percent to $9.16 billion in the third quarter and profit plummeting 48 percent to $481 million, the world’s no. 1 heavy equipment manufacturer again revised downward its outlook for the rest of 2016 and says that it isn’t expecting an improvement in 2017.
As has been the case for some time, declines in demand for mining equipment and the impact of low oil prices are the primary factors behind sales declines, which affected each of the company’s segments and occurred in all regions the company serves.
Sales fell 18 percent to $4.1 billion in North America, 21 percent to $895 million in Latin America, 19 percent to $2.2 billion in Europe and the Middle East, and 9 percent in the Asia/Pacific region to $1.9 billion.
In North America lower end-user demand for infrastructure joined mining declines and low oil prices as the primary culprits behind the sales decline, the company reports.
Caterpillar says that its construction equipment segment sales fell 13 percent to $3.6 billion. The company notes that while sales declined for both new equipment and aftermarket parts, the majority of the decrease was due to a decline in demand for new equipment.
Resource Industries sales fell 25 percent to $1.4 billion. Declines in sales of new mining equipment were the primary factor in the overall sales decline for the segment. The company notes that while commodity prices have improved from recent lows, it remains unclear whether or not these improvements will be enough to drive demand for new equipment.
Lastly, Energy & Transportation sales fell 19 percent to $3.5 billion.
Looking forward to the rest of 2016, Cat says it now expects full-year sales and revenues to total about $39 billion. That outlook is down slightly from the range of $40 billion to $40.5 billion the company forecasted in its Q2 earnings report.
The company did not provide a specific expectation for sales in 2017, but did say that it expects performance “similar to the past few years” based on the estimate that world economic growth is estimated to “remain subdued at close to 2.5 percent.”
As for positives in 2017, the company expects improvements in equipment sales in China, Brazil and Russia, and is anticipating flat to modestly-increased commodity prices.
“While we are seeing early signals of improvement in some areas, we continue to face a number of challenges,” said Cat chairman and CEO Doug Oberhelman, who recently announced that he will retire in March. “We remain cautious as we look ahead to 2017, but are hopeful as the year unfolds we will begin to see more positive momentum. Whether or not that happens, we are continuing to prepare for a better future. In addition to substantial restructuring and significant cost reduction actions, we’ve kept our focus on customers and on the future by continuing to invest in our digital capabilities, connecting assets and jobsites and developing the next generation of more productive and efficient products.”