GE and CAT are 2 of the largest industrial companies in the world. As consumers, we are rarely exposed to the industrial segments of the world economy. No surprise then, that financial media often focuses on tech, retail, and financial companies, since those are the familiar stories. But the industrial economy is massive in its own right, and a much bigger part of global growth than is often “felt” by consumers in the U.S.
Of the top 50 companies in the SPX, GE and CAT are 2 of the rare industrial names (if you don’t include energy, which have a large contingent). So what did these 2 behemoths’ earnings reports signal?
CAT just reported a slight miss (1.31 vs. 1.38) and reduced guidance on earnings and revenues for 2013 by about 10% each. The stock is actually trading around unchanged, as traders had already lowered expectations based on the 20% decline in the stock in the past 2 months. Here are the most interesting excerpts from the CEO below:
Caterpillar and our dealers usually add inventory in the first quarter to prepare for higher end-user demand in the spring and summer. In the first quarter of 2012, we added about $2 billion to inventory, but this year, we cut inventory by about a half billion dollars. In the first quarter of 2012, Cat dealers added machine inventory of about $875 million, and this year, they reduced machine inventory by about $700 million.
While expectations for Construction Industries and Power Systems are similar to our previous outlook, our expectations for mining have decreased significantly. Our revised 2013 outlook reflects a sales decline of about 50 percent from 2012 for traditional Cat machines used in mining and a decline of about 15 percent for sales of machines from our Bucyrus acquisition.
Sales declined in all geographic regions.
As with most corporate spin, most of the report is not devoted to explaining the issues with the business, which are clearly serious, given that sales declined in all regions, not just certain pockets of weakness. Rather, most of the report is devoted to the positive “highlights” from a dismal quarter.
With that pet peeve off my chest, what about GE’s report from Friday morning? The relevant commentary from CEO Jeff Immelt:
GE’s markets were mixed. The U.S. and growth markets were in line with expectations. We planned for a continued challenging environment in Europe, but conditions weakened further with Industrial segment revenues in the region down 17%. Overall, Power and Water markets were worse than we expected. While we anticipated significantly fewer wind and gas turbine shipments, we saw additional pressure in European Power and Water services.
The remainder of the Industrial segments grew profits 6%…GE saw solid growth in Aviation, Transportation, and Home and Business Solutions.
Europe was singled out for weakness, but again, filtering out the corporate spin, revenues did not grow much in any segment except for Aviation. Tepid industrial growth overall. GE’s stock closed down 4% on Friday.
In sum, add GE and CAT’s reports to the list of signs pointing to a slowing industrial economy across the world. The key for 2013 will be whether demand picks back up in the second half, or this slowing spreads and worsens.