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The company struggled last year, and the outlook for 2015 isn’t much better, as the slump in the commodities market is weighing on the company’s earnings. In the last quarter of 2014, the firm revealed a 25% drop in profits, and also lowered its forecast for 2015.
The end of the commodities super-cycle had forced mining companies to slash their capital expenditure budgets, and this has been felt at Caterpillar for a numbers of years. To make matters worse, the slump in oil at the end of last year has now prompted energy firms to aggressively curtail their spending plans. The boom-times are over for the commodities sector, and Caterpillar doesn’t have a whole lot to fall back on.
The firm’s locomotive business is anticipated to register a drop in sales in the near-term because higher standards are required by US emission regulation. The construction machinery division is the only area of the business that has growth prospects, but that is largely US driven. The expansion in infrastructure and home building isn’t enough to offset the contraction in commodity related spending. The strength of the dollar is beginning to hurt export lead companies, and this will dent Caterpillar’s sales prospects because heavy manufacturers will feel the pinch in the coming quarters.
The Illinois-based company trimmed its workforce by 2% last year, but now restructuring will be required to cope to the decline in demand for plant and machinery. The company’s vice president, Mike DeWalt, stated 2015 is going to be ‘a much tougher year’ than predicted. It sounds like Caterpillar is playing catch up with the falling commodity prices, and traders will expect a counter plan from the machinery manufacturer.
When Caterpillar posts its first-quarter numbers, the consensus is for revenue of $821 million and earnings per share (EPS) of $1.34. The fourth-quarter numbers were not well received, and revenue came in at $831 million and EPS were $1.35, while the market was expecting $941 million and $1.54 respectively. The firm will report its full-year numbers in January 2016, and the consensus is for revenue of $49.57 billion and EPS $4.66, and these figures represent a 10% drop in revenue and a 27% decline in EPS.
Equity analysts are bullish on Caterpillar; out of the 29 recommendations, seven are buys, 20 are holds, and two are sells. The average target price is $82.95 which is marginally below the current price. Investment banks hold a more bullish outlook on Cummins Inc, and out of the 32 ratings, 18 are buys, 13 are holds, and one is a sell. The average target price is $154.52, which is 14% above the current price.
The number of short positions being taken out on Caterpillar since the fourth-quarter figures were announced in January has increased by 33%. The short interest on the stock is at its highest level in 12 months.
Caterpillar is available for extended hours trading.