) recorded machines sales growth of 13% for the three months ending
August 31, 2012. Even though it has maintained a 28-month run of
sales growth, the sales growth rate is poor compared to the 34%
growth rate in August last year. Caterpillar shares fell 1% on the
Compared to the lowest growth rate of 30% last year, the current
growth rate of 13% is indeed disappointing. So far this year, the
growth rate has dipped to the below-20% range after the 27% ramp in
January, and 21% in February. Caterpillar's sales growth rate has
of late been tempered by tougher year-on-year comparisons and
weakening economic conditions, especially in Europe and in Latin
America. Sales growth is now less than one-fifth of the peak level
of 66% in 2011.
Region-wise, the company registered the maximum growth of 27% in
Asia/Pacific followed by 24% in North America. Sales in Europe,
Africa and Middle East (EAME) were flat year over year and sales in
Latin America were a dampener, recording a drop of 1%. Rest of the
World (ROW) increased 7%.
Asia/Pacific sales benefited from easier year-ago sales
comparisons as well as hike in demand from Asian markets besides
China. Of late, China's attempts to fight inflation have affected
Caterpillar's sales in the region. Caterpillar's sales in its
largest market - North America - have benefited from strong
replacement demand as equipment users replace worn-out machinery
and dealers replenish the equipment fleet for their rental
In Latin America, the growth rate is still in the red reflecting
tough economic conditions, especially in Brazil. The segment posted
a decline of 5%, albeit an improvement from the 13% drop in April
2012. This is way far down from the highest growth of 76% posted in
February 2011 and even the lowest pace of 8% in November last year.
EAME sales growth remained flat reflecting the broad economic
weakness in Europe. However, it has improved somewhat from the 1%
drop in July 2012.
In Reciprocating & Turbine Engine Retail Statistics, sales
were up 3% year over year globally. Although results improved from
the 1% decline in March 2012, the growth of 2% barely compares with
the 14% rise recorded in May last year. After a 22% growth in
January and 13% in February, the growth rate has been lingering in
the single digits.
Among the end markets, sales to the petroleum sector and
transportation reported an increase of 14% and 9%, respectively.
Sales to these sectors have depreciated significantly from the
respective growth rates of 20% and 11% in July.
Electric Power posted a 3% decline, marking the sixth
consecutive month of declining sales and in stark contrast to the
24% climb in January and 6% in February this year. However, the
rate of decline has improved from the 19% drop experienced in March
and May this year. The Industrial sector continued its string of
declining sales, seven months in a row, with sales falling
Second Quarter Recap, Guidance
Caterpillar reported a record second quarter both in terms of
earnings per share (EPS) and revenues. In the quarter, EPS was
$2.54, a 67% increase from $1.52 in the prior-year quarter, and way
ahead of the Zacks Consensus Estimate of $2.26. Revenues soared 22%
to $17.37 billion in the quarter, outpacing the Zacks Consensus
Estimate of $16.97 billion. Volumes were up for both new equipment
and aftermarket parts as well as across all geographic regions,
except China and Europe.
For 2012, the company expects to record sales in a range of $68
billion to $70 billion. EPS is forecast at $9.60. The targets, if
achieved, would mark the highest revenues and profit in
Caterpillar's history, exceeding last year's record.
The company is persistently adding production capacity for many
of its mining products. We believe that the top line at the company
will continue to grow on the back of increasing demand for
construction and mining equipment. Caterpillar plans to open new
facilities and expand existing operations, particularly in the
emerging markets, which will boost its long-term potential.
On the flip side, besides the European debt crisis, signs of a
slowdown in China have triggered concerns. A slowing Chinese
economy will have a negative effect on the infrastructure and
construction spending with an immediate impact on Caterpillar's
sales in the near term.
We maintain our Neutral recommendation on Caterpillar due to the
recent loss of momentum in sales growth, margin headwinds, negative
impact of the European debt crisis and a slowing Chinese economy.
The quantitative Zacks #3 Rank (short term Hold rating) for the
company indicates no clear directional pressure on the stock over
the near term.
Peoria, Illinois-based Caterpillar Inc. is the manufacturer of
construction and mining equipment, diesel and natural gas engines,
and industrial gas turbines. The company is one of the few leading
U.S. companies in an industry that competes globally from a
principally domestic manufacturing base.
Caterpillar operates two divisions - Machinery and Power Systems
(M&PS) and Financial Products. Caterpillar competes with the
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