Caterpillar Sales Slide

23 Jul 2015 | Author: | No comments yet »

An international construction giant has some depressing news about the global economy.

The retail-sales update, which showed an even steeper drop from the 12% decline in its first-quarter report, comes a day ahead of Caterpillar’s second-quarter earnings report.

In its second quarter earnings report released Thursday morning, Caterpillar, a $US48 billion international manufacturer of construction equipment and other heavy machinery, said that the global economy is “stagnant.” While economic conditions in the United States are modestly positive, the global economy remains relatively stagnant.Caterpillar Inc. (CAT – Analyst Report) is one of the well known names in the construction and mining machinery industry with a market capitalization of $48.1 billion. CAT -2.99 % on Thursday reported a steeper-than-expected 13% drop in sales as lower oil prices and weakness in the mining sector dragged down sales for all its major equipment segments. For the three months through June, Caterpillar’s mining worldwide equipment sales declined 13%, lead by a 38% drop in Latin America, according to a regulatory filing. And this matters because Caterpillar is seen as a bellwether of economic activity given that its machines are big, expensive, and used in the kinds of projects — highway construction, large housing developments, mining projects — to which companies and governments are only likely to commit if they’re confident in the economic outlook and their financial standing.

However, of late, the slump in oil prices pose a threat to its energy and transportation segment that provides engine products and generators to power generation, industrial, oil and gas and transportation applications. This news from Caterpillar also follows Apple’s earnings report earlier this week, which in the eyes of at least one analyst confirmed what is, perhaps, everybody’s biggest fear about the global economy: a major slowdown in China.

Caterpillar, for its part, saw “continuing economic weakness in China,” which runs a bit counter to official government data out of China that indicates GDP growth held up better than expected. Caterpillar’s report also doesn’t paint a pretty picture for commodities, which have been getting demolished in recent weeks, with notable declines in oil and gold also accompanied by copper prices slumping to a six-year low, iron ore getting smoked, and the Bloomberg Commodity Index touching a 13-year low. On Wednesday, we highlighted Caterpillar’s latest machine sales report, which was also a downbeat report showing sales declining across most all of its segments in most all of its sales regions (natural resource equipment sales were up 1% in its Europe, Africa, and Middle East segment in June, the only positive reading). Given the positive earnings surprise in the last quarter, investors have been eagerly awaiting Caterpillar’s second-quarter report to see whether it can maintain its earnings streak.

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