Caterpillar Inc., which has been working its way through a glut of unsold mining machinery following the slump in commodities, said it’s getting on top of the problem.
Inventories held by Caterpillar and its dealers will fall in the second half by a similar amount to the last six months of 2014, when they dropped by about $2.1 billion, Vice President of Financial Services Michael Dewalt said in an interview Thursday.
“I don’t think dealer inventories are out of line or problematic,” he told analysts earlier on the company’s second-quarter earnings conference call.
Caterpillar continues to grapple with a slowdown in demand from mining companies. Earlier on Thursday the Peoria, Illinois-based company reported lower second-quarter sales and profit, and said it doesn’t see “sustained signs of improvement” in some important markets. The shares fell the most in almost six months.
“They’ll still have an end-market problem but they’ll get to the end of the inventory problem,” Karen Ubelhart, an analyst at Bloomberg Industries in New York, said in an interview. “They’ve got their arms around the situation now.”
Caterpillar will see its biggest increase in sales when inventory is finally worked off and it gets back to normal replacement demand, Chief Financial Officer Bradley Halverson said.
“We won’t need a huge improvement in terms of output of mines for our sales to increase,” he said in an interview.
The Caterpillar machinery that sits parked and unused at customer sites is still a problem. Large trucks are being replaced at about a quarter of the typical rate as miners put off buying new equipment and replacement parts, Dewalt said.