Strong Balance Sheet is Helping Caterpillar Inc. Endure Weak Mining Market
Caterpillar Inc. is taking a beating as mining companies continue to cut costs and capital spending in an attempt to boost profits.
The equipment manufacturer has struggled with weak demand from the global mining sector as sales have tapered off by more 33 percent in the first quarter of 2014. And while the mining sector is falling to pieces, Caterpillar will likely weather the storm as the company relies on cash flow from operations and impresive balance sheet.
CAT’s Machinery, Energy & Transportation segment had a debt-to-capital ratio of about 30 percent at the end of the March quarter. This implies that despite the severe decline in its mining sales, the company’s cash flows from operations should be enough to pay-off the company’s debt, pension and other obligations. Not to mention, CAT increased its quarterly dividend by 17 percent to 70 cents a share. This will allow the company to pay off its obligations as well as provide enough room to increase cash return to shareholders.
In a recent release, Caterpillar stated it had returned over $5 billion to shareholders through buybacks and dividends since 2013.
The increase in quarterly dividends showcases that Caterpillar anticipates its cash flows to remain strong enough to outlast coming months as mining equipment sales continue to flat line.