Caterpillar Inc. cut 2015 forecast due to sluggish economy

Caterpillar Inc., the largest construction & mining equipment producer

Caterpillar Inc.

Caterpillar Inc., the world’s biggest construction and mining equipment producer, cut its 2015 earnings forecast on 24th of September. As it was stated by the company, sluggish global economic recovery and sliding commodity prices were to blame for the recent cuts in Caterpillar Inc.’s forecast for 2015.

Cuts in the earnings forecast for 2015

Caterpillar Inc. has stated that it expects bigger than initially expected fall-off in demand for its products in the next couple of years because of weaker commodity prices.  Doug Oberhelman, Chief Executive Officer at Caterpillar Inc., noted: “We’ve seen a slowing in economic growth more than we expected. We expect fairly anemic and modest growth through 2015.”

In addition, prices of coal and iron ore have fallen approximately 20 percent just this year. Therefore many customers of Caterpillar Inc. were forced to rethink their capital expenditures.

Caterpillar Inc. informed that it reduced its earnings forecast for 2015, by cutting its expected profit to $12 to $18 per share, compared with the previous estimates of $15 to $20 a share. As it has been stated by the company at the MINExpo industry conference in Las Vegas, Caterpillar Inc. holds an opinion that a global recession remains still possible. In addition, the world’s biggest construction and mining equipment producer’s officials believe that construction activity at least in emerging markets will probably show slight improvements.

And given the growing uncertainty in the mining market, the Caterpillar Inc.’s decision to cut its forecast for 2015 is not a surprise to Wall Street and analysts. Lately analysts had not expected miracles from the construction and mining equipment producer. Oliver Pursche of the GMG Defensive Beta Fund, which owns Caterpillar Inc.’s shares, holds an opinion that the cuts in Caterpillar Inc.’s forecast for 2015 show the slowdown trend in the global economy, so no one should be surprised by the cuts.

Caterpillar Inc.’s shares have dropped 15 percent in the past six months. Yet many analysts hope that the company will keep on providing the equipment needed when the situation in the global economy will get back to normal from the recession.

The acquisition of Bucyrus

Doug Oberhelman had been convinced that there would be a continuation of growth in commodity demand. Therefore Caterpillar acquired mining-equipment producer Bucyrus International Inc. for $8.6 billion just in 2011 and agreed in November to buy ERA Mining Machinery Ltd. in China. Yet all those plans of Caterpillar Inc.’s expansion are under pressure as mining companies tend to cut capital expenditures after China, the world’s  biggest user of coal and metals, has showed signs of the economic slowdown.

The decision to cut the forecast for 2015 came just after the aforementioned acquisition of Bucyrus, which happens to be the biggest purchase in Caterpillar Inc.’s 87-year history.  The acquisition added mining shovels and draglines to the company’s equipment, making of Caterpillar Inc. the world’s largest maker of mining equipment. Analysts, however, questioned the timing of the acquisition of Bucyrus because of tough economic conditions on the market.

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Anna Domanska
Anna Domanska is an Industry Leaders Magazine author possessing wide-range of knowledge for Business News. She is an avid reader and writer of Business and CEO Magazines and a rigorous follower of Business Leaders.

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