- The construction and mining equipment maker saw its sales drop by 23 per cent in the third quarter.
- In line with other popular bellwethers, the only bright spot right now seems to be China.
As the world’s largest manufacturer of heavy industrial equipment, Caterpillar (US:CAT) is seen as a bellwether for the global economy. Serving more than 190 countries and multiple industries, its signature yellow machines are used in everything from housebuilding to mining. Demand for the group’s products is therefore a good indicator of business confidence and the outlook for broader economic activity – if construction companies buy more equipment, it is because they expect to build more things in the near future. As goes Caterpillar, so goes the economy.
Already squeezed by US-China trade war tensions, Covid-19 has piled on the pressure for Caterpillar – its adjusted EPS plunged by more than 50 per cent in the first half of this year. Despite this backdrop, the shares have surged upwards from their mid-March low as investors bet on a global economic recovery. But recent third quarter earnings may temper those expectations. Adjusted EPS halved year-on-year in the three months to 30 September, to $1.34 (£1.03) reflecting falling sales across all product categories. As companies shy away from purchasing expensive pieces of kit, Caterpillar’s third quarter revenue dropped by 23 per cent to $9.9bn. The decline was led by North America amid less pipeline and road construction and lower demand from the oil and gas industry.