Caterpillar reports earnings before the bell this Thursday. The company already revealed its hand to the market. Late last month the company let the market know they are going to miss estimates.
For the first time in the 90 year history of Caterpillar they are going to see 4 consecutive years of declining sales. Sales are now off some 30% from the record levels of 2012.
As it stands the stock sits at long term support. A break could send the stock much lower than anyone is expecting.
$60? $50? $40?... it's all on the table once support breaks. The recent move back over $70 is a spot where I want to take a trade for a continuation of the move lower.
Short term the bounce off the recent news not only makes sense, it has lowered the price to trade for downside action. My bearish bias on the name coupled with the move right up to resistance has me thinking more downside is coming post earnings.
I will be looking to enter the $68 weekly puts tomorrow after the market opens.
EARNINGS FORECAST : Wall Street expects adjusted earnings per share of about 78 cents, down from $1.72 a year earlier, according to FactSet. The company hasn't provided a forecast for the quarter but in July projected full-year 2015 earnings of at $4.70, including restructuring costs, down from $5.88 in 2014. Caterpillar has since said it expects to reduce that forecast.
REVENUE FORECAST: Sales are expected to fall to $11.34 billion from $13.55 billion a year earlier, according to FactSet.
WHAT TO WATCH:
MORE PAIN: If anyone hoped the heavy-equipment business was bottoming out, Caterpillar dashed that notion in September by cutting its forecast for 2015 sales to $48 billion from $49 billion, compared with a peak of nearly $66 billion in 2012, and predicting another 5% fall in 2016--making this the longest slump in the company's 90-year history. On Thursday, Caterpillar is due to update its profit forecast, which is expected to fall.
AUSTERITY PLAN: Caterpillar has embarked on a new round of job cuts and said they may exceed 10,000 by the end of 2018. That would be about 9% of the total workforce as of last December. As much of 10% of manufacturing space is to be closed. Investors will want details of where Caterpillar is slicing and how margins will be affected.
PARTS AND SERVICE: Caterpillar has said mining companies have been delaying maintenance work, hurting demand for parts and services. Investors will be hoping for signs that such work can't be put off much longer.
Caterpillar Inc. said it would slash thousands of jobs and cut manufacturing space by 10%, as it expects weakening demand from resource and construction companies will continue to drive down sales of its heavy equipment through at least next year.
The Peoria, Ill.-based company said the job cuts could exceed 10,000 people through 2018, including 4,000 to 5,000 salaried and management positions to be eliminated by the end of next year. It aims to reduce annual costs by roughly $ 1.5 billion.
Caterpillar said it now expects 2015 revenue to be about $48 billion--$1 billion lower than its previous projection--which would mark a decline of about 27% from a peak of nearly $66 billion in 2012. And it said 2016 revenue likely would fall another 5% from 2015, which would be the first time in Caterpillar's 90-year history that sales declined for four consecutive years.
The announcement, which sent Caterpillar shares tumbling, underscores the depth of the downturn in the mining and energy sectors after years of rocketing demand for its excavators, mining trucks, wheel loaders and industrial engines. Caterpillar already had cut its global workforce, before Thursday's announcement, by more than 31,000 since mid-2012, and it had closed or announced plans to close or consolidate more than 20 facilities, affecting 8 million square feet of manufacturing space.
The company had 111,247 employees at the end of June.
Previous slumps in global mining have lasted for years, making it difficult for Caterpillar to hold on to plants and workers in anticipation of an upturn. And the latest restructuring makes clear that Caterpillar expects the current pain to persist.
"We are facing a convergence of challenging marketplace conditions in key regions and industry sectors--namely in mining and energy," Chief Executive Doug Oberhelman said. "While we've already made substantial adjustments as these market conditions have emerged, we are taking even more decisive actions now."
He said the cuts would "better position Caterpillar to deliver solid results when demand improves."
Caterpillar aggressively expanded during a commodities and construction boom that followed the 2008 global economic slump, anticipating sustained demand for equipment from China and other overseas markets. To free up production capacity overseas, it moved operations from Japan and elsewhere to the U.S., opening new plants in Texas, Georgia and North Carolina. The company anticipated it would need production capacity for equipment sales that would reach about $100 billion annually.
It also acquired more factories and workers when it purchased Milwaukee-based mining equipment maker Bucyrus International in 2010. The $8 billion purchase, the largest in Caterpillar's history, was intended to help it benefit from surging demand for iron ore, copper, coal and other mined commodities.
But commodity demand has collapsed amid slower economic growth in China, and lower prices for oil also have squeezed demand from Canada's oil sands region for Caterpillar's giant mining trucks.
Throughout the slump, Caterpillar has remained profitable, with earnings of $3.7 billion last year, down from $5.7 billion in 2012. And even as it has shed workers to cut costs, it has spent $8.2 billion on share repurchases over the past three years to support its stock.
Still, its share price has fallen sharply. They were trading off more than 6% late Thursday morning, leaving them down about 41% from their high in 2014.
Caterpillar on Thursday didn't update its profit outlook for this year, saying it would do so when it reports third-quarter results late next month.
The company said its restructuring effort is expected to lead to pretax costs of roughly $2 billion but that it expects to see half of the projected $1.5 billion in cost savings from the restructuring next year. It said the restructuring could affect more than 20 facilities, covering more than 10% of its manufacturing square footage.
Caterpillar said it isn't abandoning plans for a new headquarters building in downtown Peoria, but that there currently is no schedule to begin construction.
"We do remain committed to Peoria and Illinois, and our vision for a new downtown headquarters, [but] now is not the time to begin work, and I can't say when," a spokeswoman said.