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Caterpillar Withdraws 2020 Outlook as Coronavirus Hits Supply Chain

By Neha Chamaria - Mar 26, 2020 at 11:02AM

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Caterpillar says impact of the COVID-19 coronavirus outbreak on its business could be material.

In its latest COVID-19 update statement, Caterpillar Inc. (CAT 0.72%) confirmed that the global trade slowdown set off by the coronavirus pandemic has begun to hurt its supply chain. As a result, the company is suspending some of its operations and withdrawing its 2020 outlook.

This shouldn't surprise investors who are aware of Caterpillar's size, scale, and global footprint. Caterpillar's latest retail machinery sales statistics in particular have painted a dismal picture.

What Caterpillar is doing to tackle a slowdown

In its statement, Caterpillar said it will consider alternative distribution channels, including air freight; redirect orders to operational distribution centers; and prioritize the redistribution of "most impactful parts" in the wake of supply chain disruptions.

Caterpillar relies extensively on its global dealer network to distribute and sell machines and parts. In its investor day presentation back in May 2019, the company pegged its worldwide dealer network count at 168,  operating through more than 2,000 branches and 160,000 dealer employees.

A sign board with text recession ahead.

The coronavirus global slowdown could hit Caterpillar hard. Image source: Getty Images.

As for operations, the majority of Caterpillar's facilities in the U.S. and other parts of the world are still operational, but it has suspended production at some plants. Local Illinois news reports that Caterpillar's cast metals foundry in Mapleton and its huge engine manufacturing facility in Lafayette are among the facilities shut down for now. Caterpillar said it might curtail production at other facilities if the situation warrants.

COVID-19 pandemic could hurt Caterpillar real bad

"The magnitude of the COVID-19 pandemic, including the extent of any impact on Caterpillar's business, financial position, results of operations or liquidity, which could be material, cannot be reasonably estimated at this time due to the rapid development and fluidity of the situation. It will be determined by the duration of the pandemic, its geographic spread, business disruptions and the overall impact on the global economy," Caterpillar said in its statement.

Those words reek of a looming recession. While Caterpillar reassured investors of its strong balance sheet, which includes $8.3 billion in cash and available credit facilities of $10.5 billion as of the end of 2019, the uncertainty and potential impact on its first quarter has forced it to withdraw its financial guidance for 2020.

Caterpillar earlier projected 2020 adjusted earnings of $8.50-$10 per share, or a 10% drop from 2019 at the higher end of the range. Needless to say, it could get worse, proving some analysts who've already turned bullish on Caterpillar wrong. Caterpillar will release its first-quarter earnings on April 28, 2020.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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