By looking at what giant heavy equipment–maker Caterpillar Inc. (NYSE:CAT) is saying, we’re already in a global recession.
On October 22, Caterpillar reported its financial results for the third quarter of 2015. Its CEO said, “The environment remains extremely challenging for most of the key industries we serve, with sales and revenues down 19% from the third quarter last year…”
He added, “As we look ahead to what will likely be our fourth consecutive down year for sales, which has never happened in our 90-year history, we are restructuring to lower our cost structure. It’s painful and will affect thousands of people, but is essential for the long-term health of the company…” (Source: Caterpillar Inc., October 22, 2015.)
Words from Caterpillar’s management should be listened to with extreme attention. In its 90-year history, it has never had four consecutive down years in sales as it just experienced. Caterpillar, with more than 100,000 employees and assets of just under $100 billion, is the major player in the heavy equipment market and a bellwether leading economic indicator.
Caterpillar Forecasts Gruesome 2016
For 2015, Caterpillar has reduced its revenues and profit forecast. It expects sales to register at $48.0 billion, down from the $49.0 billion anticipated in July. Caterpillar expects to earn $3.70–$4.60 per share now, compared to $4.70–$5.00 per share previously. The company’s profit guidance has now dropped lower than its previous bottom-end forecast!
And 2016 is not looking good either. Caterpillar Inc. expects sales to be five percent lower in 2016 than in 2015.
Below is the stock price chart of Caterpillar. The company’s stock price has declined more than 30% since July of 2014. CAT stock currently trades at its lowest level since mid-2012. If it wasn’t for the company’s rigorous share repurchase program, the situation for Caterpillar stock would be more devastating, as its stock buyback program makes per-share earnings look better than they actually are.
Chart courtesy of www.StockCharts.com
Why the Global Economy Matters
Dear reader, Caterpillar is very loud and clear in stating that the global economy is struggling. And Caterpillar’s poor business experience isn’t the only indicator suggesting there’s a severe global economic slowdown ahead. Other indicators say the same. (See my story “Global Recession: These Two Leading Indicators Confirm It’s Almost Here.”)
As the “official data” starts to indicate a global recession, stocks could begin to see a massive sell-off. With 10 months of the year now behind us, the Dow Jones Industrial Average is down for the year, sitting four percent below its 2015 high. Considering what’s going on in the global economy, the stock market has held up quite well in 2015—better than what I thought. But a stock market cannot simply rise on the back of the central bank’s easy money policies. Unfortunately, that’s all we have left today to support stock prices.