A quarter of Caterpillar's global manufacturing operations were shut down as of mid-April as the COVID-19 pandemic spread across the globe, CEO D. James Umpleby said during the company's first-quarter earnings call.
Caterpillar is “working through a number of operational challenges related to the pandemic and [has] suspended operations at certain facilities due to a combination of supply chain issues, weak customer demand, and government regulations,” Umpleby said on the April 28th call. “As of mid-April, approximately 75 percent of our production facilities across our three main segments continue to operate. Some facilities that were temporarily closed have reopened, such as in China.”
To cope, Caterpillar is sourcing alternatively, increasing the use of air freight, redirecting orders, and prioritizing the distribution of important parts, he said.
Across the globe, Caterpillar dealers invested only $100 million in machine and engine inventories during the first quarter, compared with $1.3 billion in Q1 2019, a 92.3 percent decrease. The heavy equipment manufacturer reported a 21-percent decline in overall sales and revenues in Q1, to $10.6 billion, due to faltering end-user demand and dealer inventory contraction, all driven by the global economic shutdown intended to halt the spread of the coronavirus disease 2019 (COVID-19).
Caterpillar manufactures machinery, equipment, and turbines for mining, oil and gas, construction, agriculture, and other industries. Wheeled equipment and machinery are key high-and-heavy rolling stock cargo for roll-on, roll-off (ro-ro) carriers and ports, despite a primary focus on vehicles. Larger or heavier pieces are also transported as heavy-haul and/or multipurpose/heavy-lift cargoes.
The ro-ro carrier sector overall has been hard hit by COVID-19-related production shutdowns and shelter-in-place orders. Carrier Wallenius Wilhelmsen Group said in late March it would put up to 10 vessels in cold layup and send as many as four for recycling.
Caterpillar's revenue for its construction industries segment across all regions was down 27 percent to $4.3 billion for the quarter. Resource industries products fell 24 percent to $2 billion, and energy and transportation fell 17 percent to $4.3 billion.
Due to economic uncertainty caused by the global pandemic, Caterpillar withdrew its 2020 earnings guidance on March 26 and is not currently providing a 2020 financial outlook, Umpleby said. But “from a financial performance perspective, we certainly expect the second quarter to be weaker than the first quarter.” The financial impact will linger as long as the pandemic continues, he said.
“The impact of COVID-19 on our business has been significantly more severe and chaotic than any cyclical downturn we had envisioned,” Umpleby said. “Governments have closed suppliers with little or no notice, impacting Caterpillar's operational efficiency. Importantly, while we have taken actions to reduce costs, we have made a conscious decision to continue to invest in enablers of services growth and expanded offerings, key elements of our strategy for long-term profitable growth.”