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Caterpillar reduces costs to balance global demand slump

4th August 2020

By: Bloomberg

  

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Caterpillar’s cost-cutting efforts helped the heavy-equipment maker make up for slowing sales after demand was ravaged by the coronavirus pandemic.

Total operating costs were 25% lower, the company said in an earnings statement. Sales fell across the company’s segments, with dealers slashing inventories by $1.4-billion. While Caterpillar declined to provide forward guidance, it sees a similar percentage decrease in end-user demand in the third quarter, and expects dealers to cut stockpiles by more than $2-billion for the full year.

“Unfavorable price realization also contributed to the sales decline due to the geographic mix of sales and competitive market conditions in China,” the company said. “Sales were lower across all regions and in the three primary segments.”

Adjusted profit for the three months through June was $1.03 a share, the Deerfield, Illinois-based company said in the statement. Analysts estimated Caterpillar would post 65 cents.

The report comes amid tentative signs of recovery in some of the main markets for the company’s signature yellow machines. Miners have expressed a modicum of optimism as they continue churning out metal despite virus outbreaks. And manufacturing indexes are pointing to some gains in major economies including China.

Caterpillar, considered an industrial bellwether, has been cutting costs and paring production to shore up profit. But as signs of stabilization and incremental improvement begin to emerge, the focus is likely to turn toward the trajectory of a recovery and efforts to reduce dealer inventory, Bloomberg Intelligence said this month.

The second-quarter announcement comes after Caterpillar had extended plant closures for longer than expected, in a signal that the economic recovery was progressing slowly.

Edited by Creamer Media Reporter

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