Caterpillar says business in Brazil has ‘basically tanked’
Mining and construction equipment group cuts full-year sales and profit forecasts
Caterpillar on Friday said its business in Brazil had “basically tanked” as the country suffers from intensifying political turmoil and a deepening recession.
The comments by chief financial officer Bradley Halverson came as the world’s largest seller of mining and construction equipment — which is seen as a bellwether for global industrial demand — cut its full-year sales and profit forecasts.
Caterpillar’s overall first-quarter sales dropped 25.5 per cent to $9.46bn, while earnings fell 77 per cent to 46 cents a share. Latin American sales sank 43 per cent led by Brazil and Mexico, with low oil prices hitting demand for mining equipment.
Brazil is in the midst of its deepest recession in decades, as the commodities slump takes its toll on exports and as President Dilma Rousseff fights against impeachment.
“The Brazilian market has been important for us for a long time,” Mr Halverson told the Financial Times. “We’re really not seeing anything positive happening in Brazil — our business has basically tanked. Fiscal reforms are needed urgently … and more co-operation from the [political] parties.”
He added: “They are going to have to work really hard to maintain a business-friendly environment. In terms of what we’re seeing, we’re slightly below the bottom and it is not getting any better.”
Caterpillar is not the only multinational whose business is suffering as a result of the turmoil in Brazil. PepsiCo and Coca-Cola this week cited the country as the emerging market for which the outlook was a specific concern.
Caterpillar estimated revenues for this year would be $1bn lower than forecast at between $40bn and $42bn. This will push earnings to between $3 and $3.70 a share against a previous outlook of $3.50 to $4 a share, the company said.
Caterpillar is facing a fourth year of falling sales as low commodity prices and a slowdown in China hit economies from Brazil to Russia, crushing investment in machinery. The company said it had seen signs of improvement in the construction market in China and Europe.
However, the improvements were not enough to slow the decline in sales. The revised outlook also came on the back of worse than expected pricing for its equipment.
We’re really not seeing anything positive happening in Brazil — our business has basically tanked. Fiscal reforms are needed urgently … and more co-operation from the [political] parties
Mr Halverson was optimistic about the outlook for the US, outside the energy industry. “There are positive signs in the US,” he said. “If you’re not around oil and gas I’d say sentiment is a lot more positive than last year at this time.”
After years of strong growth in China, industrial companies such as Caterpillar and Japanese rival Komatsu have been braced for lower overall construction equipment demand on a longer-term basis.
“While first-quarter results were about as we expected, sales and profit were well below the first quarter of 2015,” chief executive Doug Oberhelman said. “Sales declined across the company with substantial reductions in construction, oil and gas, mining and rail. While many of the industries we serve are challenged, we remain focused on what we can control.”
The company’s shares, which had tumbled as oil prices dropped, have risen 15 per cent this year, outpacing Komatsu’s 2.4 per cent increase. They slipped 1.2 per cent to $77.74 on Friday.
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