Sunday, March 6, 2016

Caterpillar's Resource Segment Results Tell Us There Is No Recovery In The Global Mining Industry

Generally, when any industry flourishes, its suppliers should flourish as well. And vice versa.

One of the main suppliers to the mining industry is Caterpillar (NYSE: CAT). When you look at pictures showing works at any mine, there is a high probability that you will spot Caterpillar's heavy equipment.

That is why I closely track Caterpillars results, especially those delivered by the company's Resource Segment.
The chart below shows revenue and operating profits (losses) reported by this segment, starting from 2010:

As the charts show, since 2012 Caterpillar has been delivering worse and worse results: revenue has been going down and operating profits have been following it. Finally, in 2015 the segment printed an operating loss of $88 million. To remind my readers, in 2012 the last bear market in precious and base metals started.
Simply put, a slump in the mining industry has a negative impact on Caterpillar's Resource Segment results. What is more, there are no short - term indications that this slump is going to an end. To prove it, below I have put revenue and operating profits (losses) reported in the last 8 quarters:

Both revenue and operating results have been going down since the beginning of 2014. Note, that the operating profit (loss) reported in the fourth quarters is distorted - at year end Caterpillar, as any company, recognizes various accounting charges.

However, the overall tendency is clear - there are no signs of recovery in the global mining sector.

Last but not least. Asia / Pacific area seems to be relatively invulnerable to the ongoing slump:

In 4Q 2015 revenue in Asia / Pacific was only 7.2% lower than in 4Q 2014.

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