Oil Slide Hits Caterpillar, United Rentals
Sales of construction equipment are performing better this year, but suppliers are taking a cautious approach to their full-year outlooks due to a slow mining sector, soft construction in Europe, China and Brazil, and less exploratory work in the oil patch.
“While economic conditions in the United States are modestly positive, the global economy remains relatively stagnant,” said Doug Oberhelman, Caterpillar Inc. chairman and CEO, in the company’s July 23 second-quarter earnings report. “Many of the key industries we serve remain weak, and we haven’t seen sustained signs of improvement.”
Sales for Peoria, Ill.-based Cat in the second quarter slipped 13%, to $12.3 billion, over the prior year. Although Cat was able to achieve higher prices from new product introductions, it lowered its 2015 revenue outlook by $1 billion, to $49 billion, mainly due to the stronger U.S. dollar’s negative influence on overseas sales.
Domestically, Cat is expanding its presence in the on-highway trucking sector. The company on July 28 announced that it is ending a four-year supply deal with Navistar and bringing production of its trucks into its excavator plant in Victoria, Texas, a move that will require about 200 additional jobs. Navistar currently builds Cat trucks in Escobedo, Mexico.
“The on-highway vocational truck product family is important to our product line,” says Chris Chadwick, Cat director of global on-highway trucks. “Our updated strategy reaffirms our commitment to grow and develop our presence in the vocational truck industry moving forward.”
Truck production will begin at the Victoria plant, which will continue to build hydraulic excavators, in the first half of 2016, Cat adds.
Rental Side
United Rentals lowered its full-year revenue forecast to $5.8 billion to $5.9 billion from $6 billion to $6.1 billion, even though it grew second-quarter rental revenue 3.4%, to $1.2 billion, compared to last year. Rental rates have remained relatively flat during the first half of the year and, overall, are expected to climb just 0.5% in 2015, compared to the 3% that executives expected.
“The adverse impacts from the drop in oil-and-gas activity as well as industry fleeting were greater than we anticipated,” said CEO Michael Kneeland on July 22. “Demand for our equipment is clearly there, and our industry is expected to benefit from solid growth in the years ahead as oil drilling stabilizes and the rental fleet is absorbed.”
The slowdown may be short-lived. Increased non-residential activity is expected to continue to drive the need for heavy machinery to build projects. “Industry experts are projecting years of growth ahead,” Kneeland said.
