There are many industrial corporations in the world, but despite their global reach, very few are diverse enough to track the state of the global economy. Caterpillar is one of the few who can.
Here at ENGINEERING.com, we’ve talked extensively about CAT. As a giant manufacturer of heavy equipment and diesel engines, the firm occupies a unique position: supplying mining, logging and construction industries with diesel engines, which power the trucks that form the backbone of the global logistics system.
It’s unusual for a single company’s products to touch so many sectors of the economy, but CAT technology does, so when that firm succeeds, so does the global economy.
Global economic performance can be tracked in CAT share prices, which recently hit a 52-week low after poor second-quarter results, writes Tyler Durden of Zero Hedge. According to the company, severe weakness in mining industries continues and construction-related sales in China and Brazil are falling as new orders for oil-related applications decline.
The continued economic weakness in those two countries, on top of the uncertainty in the Eurozone and over Greece, isn’t helping confidence either. Prices for commodities like coal, iron ore and oil are not signaling an improvement in the short term.
Weak construction activity is also a problem in Latin America. A bounce in residential construction was offset by a steep decline in oil-and-gas-sector activity in North America. In Japan, the weakness of the yen meant lower U.S. dollar values per transaction, on top of already lower sales.
Although economic conditions in the U.S. are modestly positive, the global economy is stagnant and CAT reports they haven’t seen sustained signs of improvement.
The company’s second quarter sales dropped by 14 percent, mostly due to performance in China and Latin America, Durden notes. Sales also declined in Europe, Africa and the Middle East, due to the euro’s translation into fewer U.S. dollars.
So, Is This a Recession?
“At least when it comes to heavy industrial equipment and a need for mines and/or construction, the world is now in an all-out recession, if not depression,” Durden writes in response to CAT’s predictions. The company anticipates a world GDP growth of about 2.5 percent in 2015.
CAT’s outlook for sales and revenues has been lowered from about $50 billion to about $49 billion for 2015 due to the strong U.S. dollar’s effect on outside sales. Records saw $55.2 billion in 2014.
To ensure their predicted profit share of $4.70, or $5.00, excluding restructuring costs, the company announced a repurchase of approximately $1.5 billion in Caterpillar common stock during the third quarter of 2015. $500 million of stock was repurchased in the first half of 2015, Durden writes.
According to Jim Cramer, author of Get Rich Carefully, the CAT conference call is the “only one you will ever need. . . It is a superb evaluator of what’s happening in each of the countries it sells in and gives you the most thorough description of each economy.”
So if CAT says we’re in a recession, we’re in a recession.