Caterpillar's Cost Cutting Measures Pay Off
May 23rd, 2014
According to a new report in Forbes, Caterpillar is seeing strong financial growth despite an overall lag in the global mining industry. The mining company's first quarter profits grew as gains from cost reduction measures and better mining equipment sales offset weaknesses in the mining industry. Last year at this time Caterpillar's shares were trading at $1.31 and this year that number rose to $1.44.
The past year has seen a decline in mining equipment sales which has hurt many mining companies, but Caterpillar was prepared and offset this loss with higher construction equipment and reciprocating engine sales. Still, Caterpillar was going to forecast a decline of 10% in mining equipment sales but now will amend that number to 20%.
The decline in demand for mining equipment has not been isolated to any one particular region. Caterpillar is reporting weak sales in North America, Europe, Asia and Australia. For the first quarter, Caterpillar is reporting a decline in mining equipment sales by more than a third, or $2.1 billion. However, there is still demand for specific mining machinery including trucks, boring equipment and loaders as companies look to increase productivity at existing mines rather than invest in exploration of new mines.
Caterpillar is fortunate to have a strong construction equipment business and have seen sales rise by 20% annually. Areas that are generating the most demand for construction equipment include China, the Middle East and Africa. The company has also been instituting cost reduction measures across many of its operations including reducing its global workforce, reporting 9,250 fewer employees at the of this year's first quarter compared to last year.