Caterpillar experienced a profit dip at the end of last year, though the fourth quarter profits represented the first decline in three quarters. The manufacturer’s decline in Asia-Pacific sales led the drop, though there were across-the-board disappointments in regional sales. The precipitous drop in Chinese sales resulted both from a general construction slowdown last quarter as well as stepped-up competition from in-region organizations such as Sany Heavy, who are outstripping the Peoria-based firm on prices. In order for long-term growth to be expected in any meaningful capacity, Caterpillar will need to regain market share in the Sino-Pacific region, though with China’s recent announcement of lower than expected GDP growth and continued slowdowns in housing and industry it seems doubtful that this will occur.
The primary concern for most analysts is an apparent slowdown in the mining industry, which had come to be regarded as CAT’s primary growth industry. Nearly all mining-related stocks took a tumble after the announcement of slowing Chinese growth, CAT included. The mining industry has experienced rapid growth in the past 3 years, but has been provided a reality check in the form of the slow growth in China and resultant weakness in Australia. Caterpillar’s mining equipment sales are expected to be hit hard by this weakness, and what was formerly their growth sector is expected to become a drag on the company even as the housing market continues to rebound. The recent decision to fire nearly half of the mining-sector employees in Milwaukee, some 1300 jobs in a factory near Brussels, and 460 at a mining truck plant near Decatur, IL, signals that Caterpillar recognizes the likelihood of a long term slowdown.
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William Randall
KOTM Contributor
Brady@KeeneOnTheMarket.com
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