Caterpillar lowers 2016 sales forecast as end-user sectors struggle

US heavy manufacturing group Caterpillar expects a 14-15% drop in its revenues this year, as the mining, oil and gas, and rail industries “remain challenged”, it said on Tuesday July 26.

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“We’re cautious as we enter the second half of the year,” Caterpillar chairman and ceo Doug Oberhelman said. “We’re not expecting an upturn in important industries such as mining, oil and gas, and rail to happen this year.”

Moreover, world economic growth remains subdued and is not sufficient to drive improvement in most of the industries and markets that the company serves.

Commodity prices appear to have stabilised, but at low levels, the manufacturer said, and “global uncertainty continues” as the recent Brexit vote and the turmoil in Turkey add to the commercial risks, “especially in Europe”.

Sales and revenues at Caterpillar are now expected to be $40-40.50 billion for the whole year of 2016, compared with the company’s previous forecast of $40-42 billion.

This compares with revenues of $47.01 billion in 2015 and $55.18 billion in 2014.

In the second quarter of this year, sales and revenues fell by 16% year-on-year to $10.34 billion, “primarily due to lower sales volumes, resulting from continued weak commodity prices globally and economic weakness in developing countries”.

Within the total, the construction industries segment showed an 8% year-on-year drop to $4.43 billion, energy and transportation fell by 20% year-on-year to $3.75 billion, and resource industries faced a 29% decrease to $1.46 billion.

Sales declined in all geographic regions.

In North America, there was lower end-user demand for construction, continuing declines in mining, and the effects of low oil prices.

In Africa and the Middle East, there were weak economic conditions resulting from low prices for oil and other commodities, and an uncertain political environment.

In Latin America, there was continued widespread economic weakness, while in the Asia-Pacific region there was lower end-user demand for energy and transport applications.

Operating profit for the second quarter was therefore down by 41% year-on-year to $785 million.

The company’s goal “in what is likely to be our fourth down year for sales and revenues”, Oberhelman said, is “to lower costs so the decline in operating profit is no more than 25-30% of the decline in sales and revenues”.

Restructuring costs in 2016, which were expected to be about $550 million, are now forecast to be about $700 million, the company said.

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