Category: global economy

Caterpillar is no butterfly

If Caterpillar offers a window into the global economy, the view isn’t pretty.  Year-over-year revenue growth by geography/segment:

North America:

  • Construction -3.5%
  • Energy & transport -15.7%
  • Mining -7.4%

Latin America:

  • Construction -46.8%
  • Energy & transport -6.6%
  • Mining -5.6%

EAME:

  • Construction -18.0%
  • Energy & transport -4.7%
  • Mining -20.1%

Asia/Pacific:

  • Construction -30.5%
  • Energy & transport -17.3%
  • Mining -12.2%

Takeaways:

  • Mining revenues down over 60% from the peak.  Declines are coming from depressed levels.
  • North America E&T (shale boom) was a bright spot, now a negative.
  • North America Construction was a bright spot, now negative.
  • Construction around the world is plunging (-29.4% excl. North America).

CEO Doug Oberhelman was interviewed on CNBC yesterday and asked if he regretted buying back stock at $100/share (traded at 79.76 at previous day’s close).  His response:

When you do a buyback at an industrial company like us, we have a lot of cash on our balance sheet.  Our balance sheet is strong, our debt-to-cap ratio is as strong as it’s been in decades, and having cash just sit on the balance sheet doesn’t do anybody any good.

[…] Caterpillar’s a 90-year old company and I am convinced at some point, probably not in the too distant future, those $100 shares will look cheap.  They’ll certainly look cheap today and you look at this as a long-term basis.

Oberhelman apparently sees no need to batten down the hatches even though he’s in the mother of all storms (and we’re just getting started).  In fact, he just hiked the dividend 10% in June and now wants to ramp up buybacks!  Keep in mind, Oberhelman never saw this storm coming.  On November 15, 2010, just months from the top of the commodity bubble, he paid $8.6 billion for Bucyrus International, which he called “a strong statement about our belief in the bright future of the mining industry.”  The company’s press release announcing the deal read:

The acquisition is based on Caterpillar’s key strategic imperative to expand its leadership in the mining equipment industry, and positions Caterpillar to capitalize on the robust long-term outlook for commodities driven by the trend of rapid growth in emerging markets which are improving infrastructure, rapidly developing urban areas and industrializing their economies.

Caterpillar is the ultimate canary in the global economy coalmine.  As their 2nd quarter confirmed, the canary is stone cold dead.  Yet eerily, hardly anyone is talking about it.  Fittingly, CEO Oberhelman is still at the helm.

WordPress Themes