Digger firm, Caterpillar, bets on recovery

Caterpillar is the best- performing US industrial stock this year on bets its cost-cutting efforts will reap rewards as demand recovers. The problem is, demand is not recovering.

The world’s biggest maker of construction and mining equipment is expected to forecast a fifth straight annual sales decline in 2017 when it reports quarterly earnings later today.

Revenue will slip to $39.5bn (€36.3bn) in 2017 from $40.1bn this year, according to the average of analysts’ estimates. It was $47bn in 2015.

The Illinois-based company hasn’t had an annual revenue gain since posting a record in 2012.

A rebound in prices for commodities, which entered a bull market in June, has yet to translate into resurgent demand for the engines, giant trucks and shovels that Caterpillar makes.

Miners and energy customers have been cutting costs to buttress profit after raw materials from crude to zinc slid last year.

The sluggishness in sales suggests Jim Umpleby will have his work cut out for him in maintaining share gains when he takes over from Doug Oberhelman as chief executive in January.

“They’ve done well on the cost side, but the end markets are still going to stink for the new guy,” said Karen Ubelhart, an analyst at Bloomberg Intelligence.

“Those mining and energy markets may be down by a little less in 2017, but Caterpillar sales aren’t necessarily going to turn because there’s a long lead time with equipment.”

Caterpillar shares have climbed 27% this year, the best performance on the 30-member Dow Jones Industrial Average, which has gained 4.1%.

Caterpillar’s global retail sales of machines slumped 18% in the three months through September from a year earlier, with only the Asia-Pacific region growing, the company said yesterday.

Mr Oberhelman, who will stand down as CEO from January after taking the helm in July 2010, poured almost €18.4bn into research and development, capital spending and deals over a couple of years, only to see emerging markets slow and commodity prices fall.

Since then, Mr Oberhelman reorganised mining and energy segments, shutting down dozens of factories and eliminating thousands of jobs.

A years-long initiative to streamline the company’s supply and distribution network has yielded results as its gross margin has climbed annually since 2013, even as revenue slumped.