Forecasts For Caterpillar Become A Disappointment

The revenue forecasts for Caterpillar for the year 2017 are not as good as expected. Despite the recovery in the energy and mining industry throughout the world, the yellow machines of Caterpillar are yet to enjoy a rebound in sales. For the year 2017, revenue will be in the range of $36 to $39 billion with the midpoint being $37.5 billion. This is much less than the estimated $38.1 billion. It means that Caterpillar has to face a decline in the annual revenue for the fifth year consecutively. Analysts estimated that earnings will be $3.08 per share, but the actual earnings deducting the restructuring cost will come to around $2.90 per share.

Caterpillar announced that used construction equipment in stock will heavily affect the sales in the upcoming year. Miners are not expected to spend more on infrastructure anytime soon. By the end of 2016, Caterpillar had warned that analysts overestimate the earnings as several markets are facing weakness. Donald Trump has promised infrastructure improvement. However, increase in sales can be expected only in 2018 if the President actually meets his promises on fiscal spending and tax reforms. Several analysts have agreed that recovery is not happening at a pace that was anticipated earlier.

Not surprisingly, the shares of Caterpillar lost 1.2% reaching $97 before New York regular trading. However, Caterpillar shares are appreciated for their performance in the past 12 months on Dow Jones Industrial Average index. To cope up with the reduction in demand from energy and mining companies, Caterpillar proactively reduced operational costs. The CEO of Caterpillar, Jim Umpleby said that the company strives to thrive in extremely challenging economic conditions by improving shareholder returns, operating margins and overall profitability. There is some positivity in the key markets for Caterpillar, but the economic conditions throughout the country have not improved greatly.

In the October of 2016, the sales forecast was reduced and there were warnings that the market won’t be much better. The customers of Caterpillar continue to experience sluggish growth. As a result, Caterpillar’s annual revenue fell from $47 billion in 2015 to $38.5 billion in 2016. The company faced the lowest annual revenue in 2009 during the global economic recession.

The commodities bounced back in 2016, offering some hope for the market. Bloomberg commodities index increased in 2016 since 2010. This is an indication of the improvement in the US economy. The mining-related sales are expected to increase as the higher prices of commodity will influence better sales of parts. The former CEO Doug Oberhelman invested $20 billion in capital spending, research and development and various deals as the commodities market continued to grow. Previously, several factories were shut down to cope up with the falling revenue.

However, Caterpillar wants to retain jobs in the US as President Trump has promised tax cuts and reforms to improve the US job market. Caterpillar is also facing internal issues as the new management is taking the office. Analysts want to wait and watch the efficiency with which the new management is going to deal with the hurdles.


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