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I want to (re)prove a point today that I have tried to make on several occasions: The real news is in the story; not necessarily in the headline. That is why this headline for this article appears to be contradictory. Indeed, the share price of Caterpillar (NYSE:CAT) is up 1.40% to 80.96 on the New York Stock Exchange. But, while that sounds good, in reality, it is not.
Yesterday CAT shares lost 8.4% or 6.18 per share. So, despite being up on the day, its shares still need to gain another 6.2% from their current position to get back to Wednesday’s closing price of 86.03. What’s more, Caterpillar opened 2015 at 91.77, so at its current price, CAT is actually
- down 11.8% for the month of January
- down 11.4% from 17 January 2014
- down 27.3% from its 52-week high of 114.46
- and only 2.3% about its 52-week low of 79.10, which, by the way, was yesterday
What Happened?
What happened was that CAT released its Fourth Quarter and Full-Year Financial Results. Not only did the report reveal weak earnings, but it painted a gloomy outlook for 2015.
Whilst CEO Doug Oberhelman declared that “we had many positives and a better year in 2014 than 2013,” he also indicated that he was “disappointed that we missed our profit outlook in the fourth quarter.” Apparently, CAT shareholders agree.
Although the diluted profit per share for the year managed to squeak in at 0.13, the fourth quarter wiped out the gains of the previous three with a hit of (0.31). Revenues for the quarter were $13.5 billion, down $146 million from 2013. Full year revenues were off by $552 million, coming in at $52.1 billion. The company cited the impact of the “weakening of the euro and Japanese yen” as the primary reason for the revenue decline. At the same time, the report also said “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.” It’s a bit contradictory, but Mr. Oberhelman is under a great deal of stress.
What Does It Mean?
It means that it is getting more and more difficult for major international companies to live on tighter profit margins created by circumstances that are out of their control.
It means that the instability of international currencies has now become, by Caterpillar’s admission, not just a factor, but a primary factor in their success.
It means that elections, central banks, conflict and oil prices are beginning to have a greater impact than every before.
“Caterpillar is often seen as a global, economic bellwether, as its equipment is used in mining and heavy construction work around the world.”
What Does That Mean for 2015?
Oberhelman indicated that “the company does not anticipate significant improvement in the world economy.” He specifically pointed to the increasing potential of political conflicts and social unrest to disrupt the global economy. Having said that, he expects Caterpillar revenues to decline by more than $5 billion in 2015.
If, indeed, we truly believe that CAT is a bellwether for international companies, we need to keep the company on our watch lists. As long as these outside forces continue to have a significant impact on Caterpillar, we can expect similar reports from others to come.
We are going to have to be astute enough to read more that the headlines, even to reading between the lines when less candid CEOs and board chairmen comment on the performance of their companies.
