Caterpillar Inc. predicts global sales will slide to $50 billion in 2015 from $55.2 billion in 2014, largely due to falling oil prices, continued softness in the mining industry and a stronger dollar.
“The recent dramatic decline in the price of oil is the most significant reason for the year-over-year decline in our sales and revenues outlook,” says Cat Chairman and CEO Doug Oberhelman in the company’s fourth-quarter earnings report, issued on Jan. 27.
Globally, quarterly growth in North America and Europe was not enough to offset lower sales in Latin America and Asia. Additionally, construction-equipment sales in China are expected to fall again in 2015.
“While our market position in China has improved, 2015 expectations for the construction industry in China are lower,” Oberhelman says.
Energy markets were bright spots in 2014 for the Peoria, Ill.-based company. However, as about a third of Cat’s portfolio is exposed to the oil-and-gas sector, lower oil prices could cut drilling and extraction projects, reducing the need for heavy equipment to build infrastructure and service wells in the near term.
“We expect lower oil prices will be negative for [construction] sales in oil-producing countries around the world, including some regions of the United States that rely heavily on oil revenues,” Cat says in its report.
For consumers, the “fiscal stimulus” of lower oil prices could help drive global economic growth, Cat says, but it adds, “We do not believe it will occur soon enough to have a significant impact on our 2015 sales.”
Overall, for 2015, Cat forecasts construction sales will be down 5% to 10%, mining will be down 10%, and energy will be down 10% to 15%. Oberhelman predicts 2015 will be a “tough year.”
The forecast spooked some investors, sending Cat’s stock price down 7%, to $79.85, the day the forecast was announced. Analysts said Cat's anticipated sales slip in 2015 could set it up for a better climate next year.
“While it’s hard to find a silver lining, we believe Cat is taking a more conservative approach to its 2015 outlook, given the dramatic decline in oil prices,” says Jamie Cook, an analyst at Credit Suisse, in a recent note to investors. “The big question is 2016, which is a call on oil.”