Caterpillar Inc., the largest maker of life-size sandbox toys in the world, has reported a sharp slide in profits for the second quarter in a row, as demand for mining equipment takes a steep downward turn.
The company, which designs, manufactures, markets and sells mining and construction equipment — and is thus seen as a major economic bellwether for the world economy — reported a 45 percent slip in first quarter earnings. That follows a 55 percent drop in the last quarter of 2012.
Caterpillar is still making money — just way less than it used to. In the first quarter, profit clocked in at $880 million, down from $1.6 billion during the same period last year. Overall revenue decreased 17 percent to $13.2 billion, leading the company to lower expectations for the rest of 2013. Caterpillar now expects per-share earnings of $4 on total 2013 revenue between $57 billion and $61 billion, instead of $7 to $9 per share on revenue of $60 billion to $68 billion.
Subscribe to The Week
Escape your echo chamber. Get the facts behind the news, plus analysis from multiple perspectives.
Sign up for The Week's Free Newsletters
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
From our morning news briefing to a weekly Good News Newsletter, get the best of The Week delivered directly to your inbox.
Caterpillar has also announced plans to cut about 2,000 jobs.
The company's slide can largely be blamed on a drop in demand for mining equipment — down 11 percent globally, and a whopping 24 percent in Asia. As the Financial Times’ Neil Munshi reports, "The U.S. shale gas boom has driven down natural gas prices," leading power producers to replace some coal operations with natural gas — and thus require less of Caterpillar's heavy-duty equipment. The other culprit, Munshi says, is the slowdown in economic growth in China — the largest consumer of mined commodities in the world. Industrial growth in China dropped 8.9 percent compared to the first quarter last year, reports The New York Times. And fewer mining projects in China means fewer Hydraulic Shovels and Wheel Tractor Scrapers (see here), which equals less profits for Caterpillar.
The good news (beyond what less coal mining might eventually mean for China's notoriously poor air quality): Caterpillar remains optimistic when it comes to its American business. Chairman and CEO Doug Oberhelman said in a release, "In the United States, we are encouraged by progress so far and are becoming more optimistic on the housing sector in particular."
-
Should you add your child to your credit card?The Explainer You can make them an authorized user on your account in order to help them build credit
-
Cracker Barrel crackup: How the culture wars are upending corporate brandingIn the Spotlight Is it 'woke' to leave nostalgia behind?
-
'It's hard to discern what it actually means'Instant Opinion Opinion, comment and editorials of the day
