Caterpillar Inc.
(
CAT
) recorded machines sales growth of 30% for the three months ending
November 31, continuing its 19-month run of positive sales growth,
but hitting rock bottom so far in 2011. Engine sales increased 15%
across the globe.
The 30% sales growth in November saw a percentage point drop
from the 31% sales clip in the three months periods ending October
and September. Sales growth has nonetheless moderated form the
highs of 66% recorded in the month of April. Even though
Caterpillar has seen sales ramping in the last 19 months, the rate
of increase has of late been tempered by tougher year-on-year
comparisons and weakening economic conditions, especially in
Europe.
Regional Statistics
Region-wise, the company registered the maximum growth in North
America of 41%, followed by Europe, Africa, and the Middle East
(EAME) and Asia/Pacific with a 32% and 31% year-over-year
increment, respectively. Rest of the world (ROW) and Latin America
were up 25% and 8%, respectively.
Latin America, EAME and ROW witnessed the worst sales
performance so far in 2011. Particularly in Latin America, the drop
has been drastic, with the sales growth of 8% dropping from the
hitherto double-digit pace and the peak of 76% witnessed in
February 2011.
Latin America has in this year acted as a bulwark to
Caterpillar's frenetic growth pace, helped by a boom in
construction activity and mining expansion in up-and-coming
countries like Brazil that called for more equipment sale.
Sales in EAME increased 32%, flat with September sales and more
than half of the scorching pace of 65% recorded in May this year.
The sharp downside was primarily due to the sovereign debt crisis
in Europe.
Investments in infrastructure construction and mining in China,
Australia and other developing economies have spurred demand for
Caterpillar's machinery thereby contributing to solid growth in
Asia Pacific. However, China's recent attempts to fight inflation,
along with sales and production disruptions in Japan following the
earthquake, have raised a question on the sustainability of
Caterpillar's Asian sales growth.
In Reciprocating & Turbine Engine Retail Statistics, sales
were up 15% year over year globally. Though the improvement was
higher from the 13% recorded in the sequentially preceding month,
it was much weaker than the 45% growth displayed in March, the
highest rate this fiscal.
End Markets
Among the end markets, sales to the petroleum sector reported
the maximum increase of 34% year over year, followed by Electric
Power, with a 16% year-over-year climb. It is worth noting that
both these sectors saw a smart improvement from corresponding
growth of 25% and 6% in October.
The Industrial sector was a major disappointment, growing at 6%,
the lowest in 2011. Growth has dipped to single digits compared
with the high of 59% in January. Marine sales hit rock bottom with
a 24% drop in sales after a 12% drop recorded in October. Sales
growth in this category has been negative since September 2009. The
sector had registered a climb in August 2011 of 6%, and since then
has resumed its downward trend.
Third Quarter Recap, Guidance
During the recently reported third quarter, Caterpillar's
revenues surged 41% to a record $15.7 billion, surpassing the Zacks
Consensus Estimate of $14.7 billion, driven by higher volumes. For
2011, the company expects revenues to be around $56 billion and
earnings per share of $7.25. Including the impact of the Bucyrus
acquisition, EPS is forecast at $6.75 per share on the back of
revenues of about $58 billion in 2011.
For 2012, Caterpillar expects revenues to be up 10% to 20% from
the 2011 outlook of about $58 billion. The 2012 estimate includes a
full year of Bucyrus-related sales of about $5 billion, up from a
partial year of about $2 billion in 2011.
Our Take
Despite the lingering doubts overhanging the economy at large
and Caterpillar's recent loss of sales momentum, we believe the top
line would continue to grow on the back of torrid demand for
construction and mining equipment. Besides, the Bucyrus acquisition
will further add to the top line.
We hope to be more constructive on the stock once the company
displays the high levels of growth booked earlier this year. The
shares of Caterpillar presently retain a Zacks #3 Rank (short-term
Hold recommendation). We also reiterate our long-term Neutral
rating.
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 three divisions - Machines, Engines and
Financial Products. Caterpillar competes with the likes of
CNH Global NV
(
CNH
),
Komatsu Ltd.
(
KMTUY
) and
Volvo AB
(
VOLVY
).
CATERPILLAR INC (
CAT
): Free Stock Analysis Report
CNH GLOBAL NV (
CNH
): Free Stock Analysis Report
VOLVO AB ADR B (
VOLVY
): Free Stock Analysis Report
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