) shares dipped 3.63% following its announcement of a 13% decline
in global retail sales for the three months ending Apr 2013,
hitting a nadir in 2014. Sales dropped in all regions, recording
the worst performance so far in the year, barring North America.
Caterpillar had suffered a similar fall in February last year. The
company has suffered consecutive 17 months of declining sales.
Prior to this, Caterpillar had witnessed a 20-month stretch of
negative sales from Sep 2008 to Apr 2010 due to the global
recession. In May 2010, the company reverted to sales growth and
there was no looking back as sales picked up on strong equipment
demand both domestically as well as in emerging markets.
However, sales started declining since Dec 2012, affected by
tougher year-earlier comparisons, rising inventories of unsold
equipment, weak economic conditions, and slowing down of the
Chinese economy, which had earlier been the main driver of
construction and mining demand.
In 2013, the monthly sales decline rate ranged from 4% to 13%.
Caterpillar started 2014 with an 8% decrease in January and
February, but it went further downhill with a 12% drop in March and
the latest 13% reported for April.
As mentioned earlier, in April, North America, Caterpillar's
largest market in terms of geography, was the only saving grace
with a 12% increase. North America has shown considerable
improvement in 2014 compared with the growth range of 1% to 6%
reported in the first three months of this year.
Sales in Latin America nosedived 28% in April, the worst
performance so far this year. The sales growth graph has gone
downhill for the region with an 11% drop in January followed by a
16% decline in February and 21% in March.
Asia/Pacific also dragged down results with a 25% slump, worsening
from the 17% drop each in January and February and 20% in March.
Sales in Europe, Africa and the Middle East (EAME) plummeted 24%.
Sales in the Resource Industries segment plunged 49% in April, as
sales dipped across all regions. Asia/Pacific fared the worst with
a 70% slump, followed by Latin America and EAME with respective
declines of 68% and 45%. North America also reported a 3% dip. This
does not come as a surprise as sales in Resource Industries will
continue to be affected as mining companies keep reducing their
capital expenditures in 2014.
Sales in Construction Industries was the bright spot, increasing
6%, triggered by increase in all regions except EAME. Latin America
and North America together led with a 17% climb. Asia/Pacific was
up 2% while EAME sales fell 11%.
Sales in the Energy & Transportation segment edged up 3%. An
11% increase in sales in the Industrial sector and an 8% in Oil
& Gas was offset by a 3% decline in sales in both the Power
Generation and Transportation sectors.
Caterpillar nevertheless delivered an impressive first quarter with
earnings increasing 22% to $1.61 per share despite revenues
remaining flat year over year at $13.2 billion. The company's
incessant efforts to cut down costs, continued deployment of lean
manufacturing initiatives and improvement in the Construction
segment helped mitigate the effect of lower mining-related sales on
Caterpillar expects revenues in 2014 to remain flat with 2013 or
move up or down in a 5% range, and earnings per share to be at
$6.10 per share. Segment-wise, Construction Industries and Energy
& Transportation will deliver sales growth, while Resource
Industries will continue to be a deterring factor due to sluggish
order rates for mining equipment.
Caterpillar also reported a backlog of $19.3 billion at the end of
the first quarter, up 7% year over year, driven by improvement in
Energy & Transportation, mainly locomotives. This marks a
reversal from the decline in backlog reported earlier.
The decline in sales reflects the sluggishness in the mining sector
and Caterpillar will weather this storm. The company will benefit
from the recovery in the construction sector and macroeconomic
stabilization in Europe.
Furthermore, Caterpillar has initiated extensive cost-saving
programs across its global businesses. The company will continue to
benefit from additional restructuring actions in 2014 to optimize
its cost structure and improve its operational efficiency.
Caterpillar currently retains a Zacks Rank #1 (Strong buy). Some
other stocks that are worth considering in this sector include
Columbus McKinnon Corp.
). While Gorman-Rupp sports a Zacks Rank #1 (Strong Buy), Columbus
McKinnon and Komatsu carry a Zacks Rank #2 (Buy).
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