the 3 biggest challenges facing caterpillar inc. in 2016
Post on 18-Feb-2017
10.796 Views
Preview:
TRANSCRIPT
The 3 Biggest Challenges Facing Caterpillar Inc. in 2016
Plunging oil prices
#1 Oil
Source: Caterpillar
The headwind
When referring to the impact of oil prices during one of Caterpillar’s earnings calls, Chairman and CEO Doug Oberhelman mentioned how “low 70s on a sustained basis” would send “a chill across the market.”
With oil now below $30 per barrel, Caterpillar is clearly in trouble.
Why it hurts Caterpillar
Oil & gas is a key contributor to Caterpillar’s energy & transportation, or E&T sales
Source: Caterpillar’s presentation at Baird 2015 Industrial Conference
The impactPast: E&T was Caterpillar’s largest and most
profitable business in 2014, contributing nearly 60% to its total operating profit.
Present: E&T revenue and pre-tax operating profit slumped 13.4% and 16% during the nine months through September, 2015.
Future: Caterpillar expects E&T revenue to decline 5%-10% this year from 2015 levels.
Commodities in the dumps
#2 Commodities
Source: Caterpillar
The headwind
Why it hurts CaterpillarCaterpillar’s resource industries (mining) business suffered a huge
setback as iron ore, copper, and coal tumbled
Q1 2012
Q2 2012
Q3 2012
Q4 2012
Q1 2013
Q2 2013
Q3 2013
Q4 2013
Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015 $-200
$- $200
$400 $600
$800 $1,000 $1,200 $1,400 $1,600
Segment-wise Quarterly Operating Profit
Resource Industries Energy & Transportation Construction Industries
Ope
ratin
g pr
ofit (
in m
illio
ns)
Data source: Caterpillar financials. Chart by author
The impact Resource industries will likely be the company’s
weakest segment in 2016, with sales expected to decline 10% from 2015 levels
Macquarie projects demand for key commodities to remain “below the 10-year norms” this year
Caterpillar cannot unlock value from its $8.8 billion worth Bucyrus International acquisition until commodities recover
Uncertainty in key
international markets
#3 Global woes
Image Credit: Mark Doliner via Flickr
The headwind
Manufacturing activity in China contracted for the fifth straight month in December, while economic activity in Brazil shrank for the ninth straight month in November. Growth in Europe, meanwhile, remains uncertain.
Why it hurts Caterpillar
More than 50% of Caterpillar’s sales originate outside North America, with China ranking as a key growth market
Geographic distribution of Caterpillar’s 2014 machinery sales. Chart by author
The impact Caterpillar’s sales from Latin America, Asia-Pacific,
and Europe, Asia, Middle East regions slumped 31%, 25%, and 13% year over year, respectively, in Q3.
Slower growth in Brazil and China to offset strength in the U.S. markets this year: Caterpillar expects 2016 revenue to be 5% lower from 2015 levels
Strengthening of the dollar is an added pain, as international sales translate into lower revenue when converted
This $19 trillion industry could destroy the InternetOne bleeding-edge technology is about to put the World Wide Web to bed. And if you act quickly, you could be among the savvy investors who enjoy
the profits from this stunning change. Experts are calling it the single largest business opportunity in the history of capitalism... The Economist is calling it "transformative"... But you'll probably just call it "how I made my millions." Don't be too late to the party -- click here for one stock to own
when the Web goes dark.
top related