By Angela Harmantas
Caterpillar’s announcement that they were slashing revenue forecasts and cutting nearly 10,000 jobs sent the markets into a panic on Thursday, but the reason for its declining fortunes may surprise you. Today on Before the Bell we analyze what’s going wrong for the equipment behemoth, and discuss the implications for its peers – here’s what you need to know today:
What’s happening with Caterpillar? The heavy equipment giant is feeling the effects of a commodities downturn in a painful way. On Thursday, the company announced that it was planning to cut 10,000 jobs by 2016 and reduced its 2015 revenue forecast by $1 billion. These are pretty massive numbers, so why are some analysts saying that Caterpillar hasn’t done enough cost-cutting? The answer was a bit surprising, at least when I watched this interview on Bloomberg’s website. Caterpillar’s business is divided into three major segments: resources, energy and transport and construction. According to Gordon Johnson, managing director at Axiom Capital Management, the real weakness isn’t thanks to the softer commodities market but on the construction side, which Johnson believes has a negative outlook in the US.
Caterpillar’s news definitely rattled North American markets, which saw large declines on Thursday. The company’s competitors, however, should be feeling even more nervous as they are undoubtedly facing similar pressures in their own businesses. Our analysts compiled a list of small caps that could get bulldozed by Caterpillar: $1 billion-plus market caps like Navistar and Meritor, and smaller ones like Wajax Corp. are on there. But it’s not just Caterpillar’s peer group who should be wary – the company has an endless number of suppliers and end users who are likely to be affected in some way as restructuring efforts inevitably continue.
Today’s the day when Apple’s new iPhones, the 6s and the 6s Plus, hit stores worldwide. Have you been eagerly anticipating the new phones, or are you more lukewarm towards yet another new Apple product? As I said when Apple unveiled the new phones earlier this summer, it never ceases to amaze me how excited Apple devotees get over the latest iPhone incarnation. This will be an interesting test for Apple, though. Most of the people I’ve spoken to informally are fairly “meh” about the new iPhone 6s features, and given Apple’s share price struggles earlier this year they’re going to have to rely on strong iPhone sales. Do you think they can do it?
Do you have a burning question you’d like answered by an investment expert or analyst? Let me know and I can post the answer here in the blog. Contact me by email at angela@smallcappower.com or on Twitter: @aharmantas.
