One of the world’s largest manufacturers of bulldozers, solar turbines and other equipment for the construction, mining and industrial sectors has been forced to slash its full year earnings guidance after difficult trading conditions and a massive reduction in dealer inventory levels caused second quarter profit to drop by almost half when compared to the same period in 2012.
United States based Caterpillar Inc. earlier this week announced that revenue for the second quarter had dropped from $US17.354 billion in the second quarter of 2012 to $US14.621 billion in the most recent quarter.
Meanwhile, profits had dropped from $US1.669 billion to $US960 million over the same quarter – a result the company blamed on a slowdown in mining and a $US1 billion reduction in dealer machine inventory.
The company, which owns the famous ‘Cat’ brand of bulldozers and earth movers and a range of other brands and which turns over around $60 billion per year, also slashed projected revenue for 2013 from a range of $US57 billion-61 billion to $US56 billion-58 billion.
Around many parts of the world, weak levels of building and manufacturing activity combined with slowing mining conditions have wreaked havoc upon suppliers of materials to these sectors, forcing savage cutbacks in production capacity and headcount.
Earlier this week, Volvo also announced a 19 per cent drop in second quarter sales in its construction equipment business.
In Caterpillar’s case, the company has slashed more than 20,000 staff over the past12 months, laying off a net total of 9,633 of its ‘flexible’ workforce and 10,423 of its June 12 workforce of 132,825, albeit with around a third of these reductions resulting from hiving off existing businesses.
Still, the company put a positive spin on the latest results, saying its flagship Cat machines had gained market share and costs had fallen while pinning much of the reduction in dealer stock down to higher tendencies to order from the company’s own distribution centres.
“With the sharp reduction in dealer inventory and the decline in mining, 2013 is turning out to be a tough year and we've already taken action to reduce costs,” Caterpillar chairman and chief executive officer Doug Oberhelman says.
“During the first half of the year, we've had temporary factory shutdowns, rolling layoffs throughout much of the company, reductions in our flexible workforce, and we've reduced discretionary and program costs. While we've taken significant action already, we will be taking additional cost reduction measures in the second half of 2013.”
Despite the current slowdown, a number of commentators are optimistic about the long-term outlook for equipment makers as demand for housing and infrastructure in emerging economies underpins a more buoyant construction outlook down the track.
In its recent Heavy Construction Equipment Market – Global Trends & Forecasts to 2018 report, for instance, research firm MarketsandMarkets Analysis said it expected more than eight percent annual compound growth in the heavy machinery sector over the next five years, with the size of the global market to hit $195 billion by 2018.