) recorded machines sales growth of 11% for the three months ending
May 31, 2012. Even though it has maintained a 25-month run of sales
growth, there has been a clear downward trend year to date.
Growth slackened from 27% in January, 21% in February, 18% in
March and 12% in April this year. Caterpillar shares fell 2% on the
Compared to the lowest growth rate of 30% last year, the current
growth rate of 11% is disappointing. Even though Caterpillar
continues to book sales growth, the rate of increase 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-sixth of the peak level of 66% in
Region-wise, the company registered the maximum growth of 31% in
North America. Rest of the regions did not fare that well with
Asia/Pacific recording a 5% increase, Middle East (EAME) with a 4%
increment and Rest of the World (ROW) increasing a meager 2%. Sales
in Latin America were a dampener, recording a drop of 6%.
Caterpillar 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 businesses.
Investments in infrastructure construction and mining in China,
Australia and other developing economies have spurred demand for
Caterpillar's machinery, thereby contributing to brisk growth in
Asia/Pacific so far. However, of late, China's attempts to fight
inflation have affected Caterpillar's sales in the region.
Asia/Pacific posted its lowest growth rate (5%) in 2012, a sharp
contrast to the growth rate in the double digits in 2011 ranging
from 20% to 65%.
Sales performance in ROW has hit a nadir so far in 2012. In Latin
America, the growth rate is still in the red, posting a decline of
6%, but 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 also posted
its lowest growth so far in 2012.
In Reciprocating & Turbine Engine Retail Statistics, sales were
up 2% year over year globally. Albeit results improved from the 1%
decline in March 2012, the growth of 2% barely compares with the
21% rise recorded in May last year.
Among the end markets, sales to the petroleum sector and
transportation reported an increase of 25% and 9%, respectively.
Sales to the petroleum sector and transportation have dipped
further from the respective growth rates of 26% and 14% last month.
Electric Power decreased further to 19%, marking the third
consecutive month of declining sales and in stark contrast to the
24% climb in January and 6% in February this year. The Industrial
sector continued its string declining sales four months in a row,
with sales dipping 6%.
First Quarter Recap, Guidance
During the recently reported first quarter, Caterpillar's revenues
surged 23% to a record $15.98 billion. Volumes were up for both new
equipment and aftermarket parts as well as across all geographic
regions except Latin America. Besides, price realization, and the
Bucyrus and MotorenWerke Mannheim Holding GmbH acquisitions also
contributed to the rise.
For 2012, the company expects to record sales in a range of $68.0
billion to $72.0 billion. The company has now factored in higher
growth in North America that is expected to mitigate slowing sales
in China and Brazil. EPS is forecast at $9.50 on the back of strong
revenues. The targets, if achieved, would mark the highest revenues
and profit in Caterpillar's history, exceeding last year's record.
Caterpillar's order backlog has steadily increased throughout the
quarter and is at a new high, which holds promise for the year
ahead. Many products have long lead times, with some slated for
2014. This bodes well for Caterpillar's future performance.
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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