Do Caterpillar’s Latest Layoffs Signal a Clear Trend?

Caterpillar

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Caterpillar (NYSE:CAT) is the world leader in mining and construction equipment, yet news it will lay off another 460 workers at a Decatur plant follows a string of negative mining sales reports for the industry giant. A 13 percent overall sales drop for the previous three months was announced on March 20, followed by news a week later that Wisconsin factories would shed upwards of 300 jobs. Following poor sales in Q4 2012, this news of a layoff totaling 11 percent of the Decatur plant is becoming part of a clear trend for CAT.

The Peoria-based company noted earlier this year that orders for mining equipment were being delayed and canceled with regularity, while analysts acknowledge an industry-wide slowdown. Hopes that cuts might be temporary are tempered by these facts, pointing to a decline in aspects of Caterpillar’s global operations.

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Though the company opened a $200 million plant in Texas (along with factories in China) in 2012, sales in the Middle East, Asia, and Europe declined last year. The lone bright spot for Caterpillar was in Latin America, where sales grew modestly. Despite generally positive news in construction and employment, CAT expects its largest machine sales to remain slow in the coming year, leaving shareholders uncertain about the stability of company stock.

Caterpillar stock was at $109 in April 2012. At the close of Friday trading, sales were at $84.60. Goldman Sachs downgraded CAT stock on Wednesday of this week from “buy” to “neutral,” signaling hesitation on the part of many analysts. Bullish stances point to CAT’s growing revenue, net income and overall valuation as evidence that the stock could return above $100 (Goldman lowered its target to $101 on Wednesday).

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However, four hedge funds backed off Caterpillar at the end of 2012, making shareholders wonder whether to follow their lead. Signs that few insiders are adding CAT to their portfolios is another cause for concern. Taken with the regular news of factory layoffs in the U.S. (despite additions to the workforce in China) and signs sales are decreasing this year, investors should proceed with caution with respect to Caterpillar stock.

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