Shares of Caterpillar Inc. CAT slipped to a 52-week low of $62.83 on Jan 8, before closing higher at $63.29 for the day. The fortunes of the mining and equipment behemoth have been greatly hurt by the crash in commodity prices, soft mining demand and a slowdown in China.
What Led to the Drop?
Caterpillar recently reported an 11% decline in global retail sales for the three months ended Nov 2015. Per the company, till Nov 2015, its sales dropped at an average of 12% last year.. With this, the company’s sales declined for 36 consecutive months. This patch is far worse than Caterpillar’s last 19-month stretch of declining sales, spanning between Oct 2008 and Apr 2010, which was due to the global recession.
Following the tepid monthly sales data, Caterpillar was adjudged guilty by Chicago’s federal court for stealing trade secrets from Cramlington, England-based supplier, Miller UK Ltd and was ordered to pay damages worth $73.6 million. This dealt another blow to the company.
Caterpillar is expected to report fourth quarter results on Jan 28, 2016. For 2015, the company expects revenue of $48 billion and earnings per share at $4.60. With a 5% drop in revenues projected for 2016, the company will suffer its fourth consecutive year of decline, which is unprecedented in its nine-decade-long history. The dismal guidance was due to weak economic growth in the U.S. and Europe.
Moreover, U.S. construction activity is being affected by low infrastructure investment, continued headwinds from the oil and gas sector, a slowdown in China, recession in Brazil, and lower commodity prices.
Zacks Rank & Key Picks
Caterpillar currently has a Zacks Rank #4 (Sell). Some better-ranked players in the industrial products sector are Harsco Corporation HSC, Astec Industries, Inc. ASTE and Albany International Corp. AIN. All of these stocks carry a Zacks Rank #2 (Buy).
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