Caterpillar flags signs of recovery amid slack demand
Less construction during the pandemic has hurt machinery sales, but orders have risen
A construction slowdown during the coronavirus pandemic is hurting demand for Caterpillar Inc.'s heavy machinery, but the manufacturer said dealers and customers expect a turnaround this year.
The Deerfield, Ill., company said Friday that revenue fell 15% in its fourth quarter due to lower volumes and less demand from customers and dealers. Revenue declined in each of Caterpillar's main businesses: construction, mining, and energy and transportation.
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Andrew Bonfield, Caterpillar's financial chief, said in an interview that while a rebound in home construction was boosting purchases for some machinery, spending cuts by local and state governments were weighing on road construction.
"People in an uncertain time are just not necessarily sanctioning new projects," Mr. Bonfield said.
| Ticker | Security | Last | Change | Change % |
|---|---|---|---|---|
| CAT | CATERPILLAR INC. | 406.11 | +2.41 | +0.60% |
The company didn't provide profit guidance for the year, citing the unpredictability of operating during the continuing pandemic. Caterpillar said it would also end a longstanding practice of disclosing retail sales every month, and share them each quarter instead.
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Still, Caterpillar said it sees signs of a turnaround. Its order backlog increased in its fourth quarter compared with the previous three months and a year earlier as dealers ordered new machines ahead of the traditionally busy spring season. For the current first quarter, Caterpillar said it expects stronger sales of construction equipment in particular.
"Customers are starting to feel a bit more confident," Mr. Bonfield said.
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Shares rose more than 1% in recent trading.
Lower demand for Caterpillar machinery in the latest quarter is a contrast to consumer-focused manufacturers, who have struggled to keep up with large orders from customers at home buying new boats and kitchen appliances.
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The oil-and-gas industry remained a particularly weak market for Caterpillar. Lower energy prices have led to fewer developments of oil and gas projects. Caterpillar said it still sees potential in energy; its purchase of the oil-and-gas business of Weir Group PLC for $405 million is expected to be completed soon, the company said.
Caterpillar said its service and parts revenue fell to $16 billion in 2020, down from $18 billion in 2019, showing how the pandemic is making it more difficult for companies to stick by preset strategies. The company has been trying to generate more recurring revenue from services tied to digitally enabled equipment.
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The company's finance arm said that the share of customers who are late on payments rose to 3.5% at the end of 2020, up from 3.1% at the end of 2019.
In all, revenue in the quarter fell 15% to $11.26 billion from the quarter a year before. Profit declined 29% to $780 million.