Weak Caterpillar Inc. (CAT) Earnings Bode Ill For The World Economy

When Caterpillar Inc. isn’t doing well, the global economy isn’t doing well. And after reporting a weak fourth quarter, the company's stock tumbled 7 percent on Tuesday. Executives said 2015 will be even worse.

The construction and mining equipment maker, known for its iconic yellow bulldozers, has long been used to take the temperature of the world’s economy. Its products are integral to creating economic growth, especially in developing countries. On Tuesday, Caterpillar reported $14.2 billion in revenue for the fourth quarter of 2014, down from $14.4 billion the year earlier. But the worst isn’t over.

“The company does not anticipate significant improvement in the world economy,” Caterpillar said in its latest earnings announcement Tuesday. Executives expect that the global economy will grow 2.7 percent this year. Though it’s a slight increase from 2.5 percent in 2014, it’s still not ideal, and less optimistic than the World Bank’s estimate of 3 percent.

“Despite our outlook for modest improvement in global economic growth, significant risks and uncertainties remain that could temper growth in 2015,” the company said, citing “political conflicts and social unrest continue to disrupt economic activity in several regions, in particular, the Commonwealth of Independent States, Africa and the Middle East.”

In 2015, Caterpillar expects sales to decrease 10 percent from $55 billion last year to $50 billion.

Caterpillar CEO Doug Oberhelman said the Peoria, Illinois-based company company faces “a tough year.” One of the primary reasons: record-low global oil prices, which hit the company’s transportation and energy sectors especially hard, while impeding construction business in major oil-producing countries. The company also cited the Chinese government’s push for structural reforms and uncertainty about U.S. monetary and fiscal policy that could “temper business confidence.” And lower prices of commodities such as copper, coal and iron ore make the outlook less than bright for mining equipment sales.