Industrial-Bellwether Caterpillar Explains What's Going On In China

nanyang, China

Photo: Wikimedia Commons

Caterpillar just came out with earnings, and they were weak.Revenue missed expectations, and the company cut its EPS outlook.

Via its extended earnings release, here’s what the company says is happening in China:


Are you seeing any signs of improvement in your China sales for construction? What are your expectations for the fourth quarter and into 2013?

Sales in China remained weak in the third quarter and below the third quarter of 2011. While our sales and dealer deliveries remained at low levels, finished inventory in our Product Distribution centre (PDC) in China and dealer inventories declined during the third quarter. While we have reduced production in China substantially, we have not seen an improvement in sales yet, and, as a result, the inventory reduction in China is slower than we had expected.

On a positive note, although sales of excavators remain weak, we have done better than the overall excavator industry in China, particularly with mid-size and large excavators.

We remain very positive on long-term industry growth in China and our strategy to grow our business there. Our plans for the remainder of 2012 reflect a continued orderly ramp down of production that considers our entire supply chain in China. Given the current low rate of sales and the production ramp down, it will likely take the rest of 2012 and continuing into 2013 to reduce inventory to levels more in line with sales.

While the industry is down and will likely remain down for the balance of 2012, we are encouraged by recent actions that the Chinese government has taken to improve growth. They have lowered bank reserve requirements, increased infrastructure investment and have cut interest rates. We expect they will continue to ease policy to help improve growth in their economy. Those actions will likely lead to better growth in the construction industry in 2013.

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