Caterpillar Digs Itself a Deeper Hole, While Ford Climbs Out


With growth in developing economies slowing down, there's an increased focus on the U.S. Fed policies which could pose a risk to the global economic recovery if not handled appropriately. The Organization for Economic Cooperation and Development released a report that said the U.S. debt ceiling should be replaced by "a credible long-term budgetary consolidation plan with solid political support." As investors continue to keep an eye on the Fed, much focus is also aimed at the retail sector during the holiday season. The Dow Jones Industrial Average is trading flat today, but three industrial juggernauts aren't helping the cause.

Boeing, General Electric, and Caterpillar are all trading in the red today, down 1%, 0.5%, and 0.3%, respectively.

Photo credit: Wikimedia Commons.

Caterpillar is continuing its cost-cutting measures and is closing operations left and right. It recently announced it will be closing its Pulaski, Va., mining equipment facility and will consolidate the operation with its Pennsylvania facility. That's another 240 job cuts after the company announced in late October that it would close its Bucyrus International manufacturing operations in Kilgore, Texas, later this year.

Roughly 13,000 people have lost their jobs due to the dramatic drop in demand for Caterpillar's mining equipment, and things aren't looking brighter for the near future.

"Unfortunately, order rates have not picked up much despite continuing strong commodity production," said chairman and chief executive Doug Oberhelman, according to Morningstar. "That has caused us to ratchet down our sales and revenues outlook as we have moved through 2013."

Outside of the Dow Jones Industrial Average, the good news continues for Ford investors. The company announced that its operations in Europe brought the company its ninth consecutive month of improved retail-market share and fifth consecutive month of increased sales volume.

Moreover, what's more important than its overall market share increasing is the type of sales driving it. The good news is that Ford is growing its share through an improving sales mix. Sales to rental companies -- typically much less profitable and a drag on resale values -- declined 500 basis points to 25% of company sales.

"Thanks to the strength of our products, the quality of our sales -- more sales to retail and fleet customers, reduced sales to rental companies and fewer dealer self-registrations -- continues to be better than industry average," said Roelant de Waard, Ford of Europe's vice president of marketing, sales, and service. "I am confident we'll see that trend continuing as we accelerate our vehicle introductions with at least 25 new or refreshed vehicles within five years as we go into 2014 and beyond."

Graph by author. Information from Ford's SEC filings

As Ford continues to improve its sales mix to be more profitable, and as new vehicles release, look for the company to break even in the region by 2015 -- or, dare I say, turn a profit. As the situation develops, expect Ford's stock price to react favorably.

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