Investors have waited patiently as Caterpillar's (NYSE: CAT) business has suffered rough patches throughout 2013, 2014, and throughout 2015, hoping for an eventual turnaround in the company's global business environment. Unfortunately, investors will have to wait longer, because 2016 is expected to be just as bad as recent history suggests -- with weak demand for equipment used for mining and oil operations, management cut its forecast for Caterpillar's full-year earnings and noted that sales would fall in 2016 for the fourth consecutive year.
Let's take a look at some of Caterpillar's core financial figures, and what management had to say.
By the numbers
Despite Caterpillar's stock price rallying as high as 4% after the company's conference call on Thursday, it was a pretty poor third quarter overall. Caterpillar's sales fell 19% to $11 billion, which was the lowest quarterly performance since its second quarter of 2010, and roughly $300 million below analyst estimates. Even worse, Caterpillar's net income dropped a staggering 64% from $1.63 to $0.62 per share in the third quarter, compared to last year.
Looking at recent history, you can see a clear downward trend in Caterpillar's segment and total revenue.
That downturn is even more pronounced looking at Caterpillar's operating profit in 2015.
It's no secret that Caterpillar's business is cyclical, and that all of its business segments are heading in the wrong direction at the moment; here are some company and industry voices on the subject.
What management and analysts had to say
"The China-driven commodities super cycle drove a lot of things up in the world" in recent years, Doug Oberhelman, Caterpillar's chief executive officer, said on the conference call. "Now we're living off the backlash of that."
"There's a weak feel to everything here," Stephen Volkmann, a New York-based analyst at Jefferies, said according to Bloomberg. Caterpillar's energy and transportation segment "is carrying the load here, and the concern is how long that can last."
What's next for Caterpillar?
The only real option for Caterpillar is to continue cutting costs until its global business rebounds, and keep its balance sheet as strong as possible. Looking at the former, Caterpillar expects capital expenditures this year to check in at half the levels they reached in 2012, and that will remain the goal for 2016 as well. 10% of Caterpillar's total production square footage has been consolidated or closed, and the company continues to trim its global workforce.
All in all, management expects to trim $1.5 billion of annual cost reduction by 2018, with half of that expected to happen in 2016.
Regarding the balance sheet, Caterpillar has reduced its machine, energy, and transportation debt-to-capital ratio from nearly 58% at the end of 2008 down to 37% at the end of the third quarter. Further, despite weak business demand, Caterpillar has managed to improve its cash and cash equivalents over the same time period.
Caterpillar's guidance for the remainder of 2015 wasn't much rosier than its third-quarter performance, either. Profit per share is expected to check in around $3.70 for the full year, compared to previous guidance of $4.70, and sales and revenue is expected to end 2015 at about $48 billion at the high end, compared to previous guidance of roughly $49 billion.
Ultimately, navigating through the cyclical business is something Caterpillar has become accustomed to over the past nine decades. Sales and revenues for construction industries, energy and transport, and resource industries are respectively expected to decline 5%, 5% to 10%, and 10% in 2016. However, Caterpillar isn't going to disappear, and when its business begins to rebound globally, expect investors to jump on the bandwagon fairly quickly -- though, that might not happen until around 2017 or beyond.
"Our day will come, but it's not right now," Caterpillar CEO Doug Oberhelman said on CNBC's Squawk Box.