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Caterpillar Cracks Under Coronavirus Pressure: Retail Machine Sales Tumble

By Neha Chamaria - Mar 12, 2020 at 2:53PM

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Caterpillar cracks under the pressures of the COVID-19 coronavirus outbreak, numbers warn of a slowdown.

Caterpillar Inc. (CAT -0.26%), often considered an economy bellwether, just reported its retail machinery sales for the three months ended February. They're dismal, to say the least, and could be a precursor to more pain ahead. The COVID-19 outbreak and the resulting slowdown in global trade are wiping out all hopes of a recovery in the blue chip stock's top line and price. A coronavirus trade slowdown is the last thing Caterpillar wanted when it's already battling volatile commodity markets and an economic slowdown in China.

The worst part: Caterpillar last reported such a big drop in global machinery sales in the three months ended December 2016. Yes, you read that right. 

A caution sign.

Coronavirus outbreak is a major threat to Caterpillar's sales growth. Image source: Getty Images.

Caterpillar's retail sales portend a slowdown

Each month, Caterpillar releases global retail machinery sales growth numbers for the previous three-month rolling period to give investors an idea of the shape of things at the company before its regular quarterly earnings releases. Here's what Caterpillar's report for the three months ended February looks like, broken down by segment and geographic region:

Segment Asia-Pacific EAME* Latin America North America World
Resource Industries 20%  (9%) (17%) (17%) (7%)
Construction Industries (28%) (2%) 4% (9%) (11%)
Energy & Transportation (5%) 1% (13%) (3%) (4%)
Total  (17%) (4%) (4%) (12%) (11%)

*EAME: Europe, Africa, Middle-East region. Data source: Caterpillar.

Summing up, Caterpillar's worldwide machinery retail sales slumped 11% in the three months ended February, with construction industries turning out to be the weakest segment and Asia-Pacific the weakest region. The lone bright spots like resource industries in Asia-Pacific weren't enough to offset declining demand in other markets. Caterpillar's resource industries' segment primarily manufactures and sells mining equipment. 

In the three months ended December, 2016, Caterpillar's total machine sales dropped 12%. Sales picked up pace in March 2017 and have been rising since, period after period, even clocking double-digit gains through 2018 (check out this fantastic graph by fellow Fool Lee Samaha here to get the complete picture). Sales started to decelerate in 2019, and the latest numbers are more than just worrisome. 

The UN's COVID-19 statement is scary

Caterpillar is getting hit from all sides. It has heavy exposure to the oil markets and China, both of which are getting battered right now. As it is, Caterpillar's outlook for 2020 isn't really encouraging. 

In a recent technical note , the United Nations Conference on Trade and Development (UNCTAD) stated that while the impact of COVID-19 on China's production capacity is still uncertain, "the most recent statistics point to a significant downturn." That's one statement that could scare any investor.

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