Caterpillar's (CAT -1.40%) having a tough couple of years, no question about it. The gigantic industrial manufacturer of heavy machinery and equipment reminds me of a boxer going into a title fight with nobody believing in him. Consider that Morningstar.com recently lowered its fair value estimate from $98 down to $74 and suggests a buying price as low as $44. Also, the IRS is trying to add a $1 billion bill for taxes and penalties to Caterpillar's problems, and all the while, the heavy machinery manufacturer continues to report dismal sales across the world.
Ouch.
But just how bad did Caterpillar's January sales results turn out? Were there any bright spots? Let's dig in.
By the numbers
Caterpillar generates the vast majority of its revenues from sales in three distinct segments: resource industries, construction industries, and energy and transportation. For a bit of context, resource industries, which is linked to heavy mining equipment, had once been the powerhouse of Caterpillar profits.
Chart by author. Data source: Caterpillar's Q4 presentation.
As you can see, that's no longer the case, and recent sales trends suggest that resource industries has more pain ahead. In January, for the three-month rolling period, sales were down 27% compared to the same time frame of 2014. Even worse, the decline in sales was due to an abrupt weakness in its Europe, Africa, Middle East region, which saw sales decline only 5% for the three-month period ending in December 2014, to a decline of 30% for the three-month period ending last month -- a significant decline.
That reversed the segment's recent trend in the right direction and resulted in the worst three-month rolling sales report in four months.
Chart by author. Data source: Caterpillar's January retail sales press release.
Looking at Caterpillar's construction industries segment, things have clearly gone from the bright spot in sales to bad and then to worse. Much of the blame is right here in North America. Compared to the previous year, sales here have slowly slipped from being 8% higher for the three-month period ending in November 2014, to up only 5% for the three months ending in December, to flat for that same period in January -- a clear downward trend. What was once the strongest region in the segment has slowly declined, which has led the construction industries segment lower in the process.
Chart by author. Data source: Caterpillar's January retail sales press release.
The bright spot?
If there is a bright spot in Caterpillar's sales in January, it's energy and transportation sales. The segment posted a 22% improvement in sales for the three-month period ending in January, compared to the same time period in 2014. However, the strength is coming from only one part of the overall energy and transportation segment: transportation.
Table source: Caterpillar's January retail sales press release.
Caterpillar Chairman and Chief Executive Officer Doug Oberhelman said in a press release:
The recent dramatic decline in the price of oil is the most significant reason for the year-over-year decline in our sales and revenues outlook. Current oil prices are a significant headwind for Energy & Transportation and negative for our construction business in the oil producing regions of the world. In addition, with lower prices for copper, coal and iron ore, we've reduced our expectations for sales of mining equipment. We've also lowered our expectations for construction equipment sales in China. While our market position in China has improved, 2015 expectations for the construction industry in China are lower.
I think that quote sums Caterpillar's situation up well: While long-term investors may be rewarded, business isn't improving anytime soon.
