At the end of last month US heavy equipment supplier Caterpillar, a major supplier to the mining and construction sector became the latest in a long line of companies to announce the potential for large job losses in the face of concerns about falling sales and slowing growth. The decline in commodity prices and the currency effects of a strong US dollar has decimated the manufacturing sector across the world, including the US, where job losses in the sector look to have only just started. Caterpillar’s announcement at the end of last month that it would be looking to cut 10,000 jobs, cutting its revenue forecast for 2015, and warning that 2016 would see further declines in sales has seen the share price continue to trend down from the peaks we saw in mid-2014. The company singled out its oil and gas business as a particular cause for concern. About 60% of the company’s pre-tax profits come from outside the US and the company has already cut over 30,000 jobs since the end of 2012, and this week’s Q3 numbers aren’t expected to end the pessimism surrounding the outlook for one of the US’s biggest economic bellwethers. In Q2 the company saw a 25% decline in its earnings largely as a result of the slowdown in Brazil and China, and while expectations for Thursday’s Q3 numbers are low, that doesn’t mitigate the prospect of an even bigger downside surprise, particularly on the revenue side. Expectations are for EPS of $0.79c a share and revenues of $11.4bn. This week’s disappointment from oilfield services provider Halliburton should act as a cautionary narrative in that regard, after the company cut another 4,000 jobs in Q3, and announced a 36% drop in revenues as the slowdown in shale hit its business, and saw the company post a net loss of $54m. Halliburton cited the prospect that oil prices are likely to remain low for a longer period, which suggests that Caterpillar could well be equally pessimistic so investors would do well to monitor this week’s update from Caterpillar for further announcements of bigger capital expenditure reductions, and the direction of travel with respect to new orders and existing orders. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person.
Caterpillar could add to US manufacturing sector woes
11:00, 21 October 2015