Caterpillar Q4 Sales Miss, Tumble 23%; Guidance Obliterated

Tyler Durden's picture

As we do every quarter, just before CAT announces its result, we show the monthly retail sales for the heavy industrial conglomerate, and in the month of December things went from really bad to even worse, when the company reported what in our estimate was the worst month since the financial crisis, with global retail sales matching the worst annual decline this decade, while the duration of the sales contraction is now unprecedented in company history.

 

Today, CAT confirmed the flow through from this depressed picture when it announced that not only did revenue tumble by 23% to $11 billion, but it missed already deeply cut estimates of $11.4 billion, leading to a 111% collapse in operating profit which from $1.1 billion turned into a $114 million loss in the quarter. To be sure, the company tried to pull an Alcoa and stuff massive restructuring charges in the quarter amounting to $689, boosting non-GAAP EPS by $0.89 to $0.74, however one can simply ignore this latest accounting fudge attempt.

Then there was the topic of ongoing inventory liquidation:

Inventory declined about $1.45 billion during the fourth quarter of 2015. For the full year, inventory decreased about $2.5 billion. "Caterpillar inventory declined $1.45 billion during the fourth quarter of 2015, compared to a decline of about $1.1 billion during the fourth quarter of 2014.  A fourth-quarter decrease is not unusual, as some of our businesses ship long lead-time capital goods in the fourth quarter.  For the full year of 2015, Caterpillar inventory declined about $2.5 billion. While we believe our inventory levels are not excessive, we are anticipating that lower sales and our ongoing Lean initiatives will result in some reduction in inventory in 2016."

Expect much more GDP-reducing inventory liquidation in the months ahead.

The 2015 summary via the CEO:

This past year was a difficult one for many of the industries and customers we serve.  Sales and revenues for 2015 were nearly 15 percent lower than 2014 and 29 percent off the 2012 peak.  The two most significant reasons for the decline from 2014 were weakening economic growth and substantially lower commodity prices.  The impact of weak economic growth was most pronounced in developing countries, such as China and Brazil.  Lower oil prices had a substantial negative impact on the portion of Energy & Transportation that supports oil drilling and well servicing, where new order rates in 2015 were down close to 90 percent from 2014.

 

"We anticipated about $5 billion of the $8 billion sales and revenues decline in our January 2015 outlook as we started the year.  Actual sales and revenues were about $3 billion below that $50 billion outlook because of steeper than expected declines in oil prices, a stronger U.S. dollar, weaker construction equipment sales and lower than expected mining-related sales in Resource Industries," added Oberhelman.

Who is to blame? Why China... and the strong dollar of course:

In Asia/Pacific, the sales decline was primarily due to lower sales in China and India and the unfavorable impact of currency.  The most significant decline was in China, a result of continued weak residential and nonresidential construction activity.  The unfavorable impact of currency was primarily due to the weaker Japanese yen and Australian dollar. 

But where things get really messy was the company's guidance which was absolutely obliterated, and saw CAT slashing its 2016 revenue projection cut from the $45.5 billion forecast as recently as last October to a range of $40-$44, or a $42 billion midpoint, a cut of nearly nearly 8 in just three months! This is what the company said:

The outlook for 2016 sales and revenues does not anticipate improvement in world economic growth or commodity prices.  Sales and revenues are expected to be in a range of $40 to $44 billion – a mid-point of $42 billion.  The mid-point of the range reflects a decline of about $3.5 billion from last October's preliminary outlook for 2016 sales and revenues and a year-over-year decline of about 10 percent.  The decrease from last October's preliminary outlook is largely a result of continued declines in commodity prices and economic weakness in developing countries. 

Some additional color from CEO Oberhelman:

"Our outlook reflects struggling oil and other commodity markets, and continued economic weakness in developing countries.  While the U.S. and European economies are showing signs of stability, the global economy remains under pressure.  While we manage through these difficult economic times with substantial restructuring actions to lower costs, we are also preparing for the long term.  We are continuing substantial investments in R&D and our digital capabilities.  These investments will be positive for Caterpillar and our customers through connected fleets and jobsites and access to data and predictive analytics.  Investing in the future is important to improving productivity and the bottom line – for Caterpillar and our customers over the long term.  While it is tough to predict when an economic recovery will happen, the investments we are making and the actions we are taking to lower our cost structure and improve quality and our market position will help deliver better results when a recovery comes," said Oberhelman.

Good luck.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Cognitive Dissonance's picture

Odd....CNBC had a different point of view this morning. Said Cat beat and all was well.

Cognitive Dissonance's picture

To be fair CNBC did say revenue was 'light'. Similar to how I might find myself 'light' when trying to pay the hookers and blow tab at the Waldorf Astoria......let alone the food and accommodations bill.

new game's picture

i see the "light" said the blind man to his deaf seeing eye dog at the busy intersection!

Father Thyme's picture
Father Thyme (not verified) new game Jan 28, 2016 9:16 AM

Cat. Gone to dogs.

NoDebt's picture

"Hello, thank you for calling Caterpillar."

"Yes, I'd like to place an order for a bulldozer."

"Sure, when do you need it?"

"March."

"March of this year?"

"Um... yeah."

Caterpillar employee slams big red button on desk in front of him, siren wails and he yells "We got one!!!"  Factory lights come on, assembly line fires up for 5 minutes and goes dark again as soon as the finished unit rolls off the loading dock onto the delivery truck.

Caterpillar stock jumps 9% on the news.

 

Ghost of PartysOver's picture

Shares up because of algo reading headline numbers.  Reality will set in soon.  Oh the games Wall Street plays.

Kprime's picture

CNBC was in the middle of beating off and confused the story line.  key board was sticky.

Budnacho's picture

Which life of CAT was this?.....7th......8th?

onewayticket2's picture

but wait....president obama stood with CAT CEO and promised me 4% GDP growth if we passed his "stimulus" and used CAT as the poster boy for American revival.

youngman's picture

Yes Cat is up at the moment...sales drop...stock up...must be a big buyback..

tarsubil's picture

Their 12 year average revenue is ~46.9 which was their yearly revenue in 2015. The company really hasn't gone anywhere since exploding in the mid '00ies. I'd buy CAT at about $35 make that $20.

firstdivision's picture

Nothing moar QE cannot fix.  Also I'm sure negative rates will make people want to build stuff.  I'd recommend another Tower of Babel, but then again, we already have 200 West

g'kar's picture

cat is one company that could sure use a good war about now

khnum's picture

they need to make tanks or something that can be used to blow shit up non defense industries are dinosaurs

StychoKiller's picture

Hmm, seems to me that Assad & Syria could use a lot of heavy equipment to clear away Tonz of rubble...

gatorengineer's picture

Good thing GAAP earnings arent reported or this would be really depressing

overmedicatedundersexed's picture

well if cat is up pre market, the PPT must be doing an all nighter..invest accordingly. ;-)

khnum's picture

whole world in the shitter but wall street futures in the green....again

MFL8240's picture

Not important what Catapikllar makes, that is the real economy, we need to refocus on is what Facebook a company that produces nothing makes .  Just look at the price of Facebook, up $9.00 as we speak and they produce absoultely nothing.

g'kar's picture

you can't put a price tag on an intelligence gathering asset

Government needs you to pay taxes's picture

When the free shit runs out, nobody will have time for FB.

NoDebt's picture

FB might not be worth much in terms of advertising revenues, but it's value to the NSA is very high.  That's what supports it's stock price.

Kprime's picture

the NSA is keeping a close watch on Cats, they may be secretly planning to take over the world.  They are in near complete control of FB.

Cats planted this Cat-erpillar article as a false flag to draw the NSAs attention away from their diabolical plan. As soon as the staff at the NSA finish ejaculating from the last 8 hours of porn they plan on following up on this lead.

Arnold's picture

Ad revenue and server usage aint nothin bub./s

 

Several billion eyeballs monthly.

silverer's picture

Facebook is a room full of computer servers and legal counsel.
The Facebook consumer engages in typically unimportant chatter, and they are not learning any useful skills. Imagine you are hiring, and the prospective employee tells you he or she has been on Facebook 8 hours a day, five days a week for the last five years. What skills do they actually have to offer from that experience?

Sandmann's picture

President of the United States  (twitter)

still kicking's picture

If she's hot she might be able to still give a respectable hummer

Kprime's picture

They can provided expert counsel on Likes and Dislikes.

Already I have given you a Dislike.

Emergency Ward's picture

They will know how to link to a cute-cat video.  That must be worth something.

Sandmann's picture

No storage costs, no physicality, no inventories just casino chips

Wannabe_Oracle's picture

But, but... They have six new feelings they are launching - that has value, right... ./

http://www.bloomberg.com/features/2016-facebook-reactions-chris-cox/

Kprime's picture

I've just updated my status to "Laid off in LoneStar", already I have 125 likes!

markitect's picture

Cat's CEO did say they were doubling down on digital integration into their products. Facebook from from your front loader = win for productivity.

CheapBastard's picture
Steel giant to cut hundreds of Texas jobs

 

United States Steel Corp. (NYSE: X) plans to cut nearly 700 employees at its Houston-based subsidiary's plant in northeast Texas.

In a letter to the Texas Workforce Commission, U.S. Steel Tubular Products Inc. said it plans to lay off 679 employees at its plant in the small town of Lone Star, Texas, near the Louisiana and Arkansas border. The cuts will begin March 13 and continue into May.

 

http://www.bizjournals.com/houston/morning_call/2016/01/steel-giant-to-c...

 

Moar spreading "Recovery." It's no wonder new house sales are up?!

Sandmann's picture

So we had a huge commodities boom because of China and a huge construction boom because of easy credit. Both are now burned out and we are back on the path that Greenspan derailed with his expansionary credit policies.

CAT had better get used to the new world where there are lots of serviceable second-hand machines and a world that probably only needs OEM parts rather than new earth movers.

Wannabe_Oracle's picture

How does one procure these accounting practices - I'm obviously doing something wrong.. ./

E.F. Mutton's picture

Are they using Common Core Accounting?

new game's picture

i will post these quotes, just thinking...

Adolf Hitler

  • Terrorism is the best political weapon, for nothing drives people harder than a fear of sudden death.

  • I have not come into this world to make men better, but to make use of their weaknesses.

  • What good fortune for those in power that people do not think.

  • I have sympathy for Mr. Roosevelt, because he marches straight toward his objectives over Congress, lobbies and bureaucracy.

  • [I]n the simplicity of their minds, [people] more readily fall victims to the big lie than the small lie… It would never come into their heads to fabricate colossal untruths, and they would not believe that others could have such impudence to distort the truth so infamously. Even though the facts which prove this to be so may be brought clearly to their minds, they will still doubt and waver and continue to think that there may be some other explanation.

NoPension's picture

Cat makes good stuff. But it can be kept going for ever, with good maintenance.
Add to that, the Asian manufacturers who are way less expensive. I don't know how they have lasted this long.

Edit: during the big blizzard here in the NE, the news would go to the salt domes, and show trucks being loaded. What would ALWAYS have been a big yellow CAT wheel loader, was a brand spanking new orange some brand that ended with 'woo.

yogibear's picture

CNBC reported it as positive because it has to keep all the penguins inline.

another_brick_in_the_wall's picture

While I dont wont to dilute the message you are sending, its worth publishing the same graph with a more STATISTICALLY SIGNIFICANT SAMPLE SIZE.

Grandad Grumps's picture

"To be sure, the company tried to pull an Alcoa and stuff massive restructuring charges in the quarter amounting to $689, boosting non-GAAP EPS by $0.89 to $0.74, however one can simply ignore this latest accounting fudge attempt.

Then there was the topic of ongoing inventory liquidation:"

My guess is that CAT and Alcoa had legitimate reasons to use non-GAAP accounting to show the different between actual operating performance and that caused by decreases in raw material inventory. When you take a loss on aluminum or steel that was in inventory when it is used or sold, it is NOT because your operations suck and are unprofitable, but because the f'n bankers dropped commodity prices to put pressure on collateral levels globally.

Real company accounting charges should be differentiated from fake and useless company non-GAAP accounting, where companies such as Facebook, LinkedIn and Twitter use non-GAAP accounting to not count compensation costs as part of their P&L.

Not sure who the clown is that wrote this article, but they have an agenda.

Government needs you to pay taxes's picture

The use of 'non GAAP' P&L accounting can be separated into a consistent/habitual category and an unusual/extraordinary category.  The company that habitually presents a non-GAAP EPS number that is >20% above the GAAP number generally indicates the company is in a bad competitive position and isnt a good fundamental investment opportunity (altho I suppose there is a price for any asset).  Dont know why one would hold CAT or Alcoa stock right now.  I cant perceive indications of global economic growth acceleration . . .  

foodstampbarry's picture

Cash for Cat. I need a pipe dug up in my backyard. Barry, make it happen.