On Aug 2, we downgraded
), leading manufacturer of construction and mining equipment,
from Neutral to Underperform given its lackluster second quarter
results, trimmed outlook for 2013, weak demand for its mining
equipment, declining backlog and negative impact of the European
debt crisis. Caterpillar retains a Zacks Rank #3 (Hold).
Reduced mining demand coupled with a decline in inventory led to
a 43% slump in second quarter 2013 earnings of Caterpillar to
$1.45 per share and a 16% decline in revenues to $14.6 billion in
the quarter. Sales volume decreased $2.545 billion, mainly due to
the impact of changes in new machine inventories with
Citing lower mining-related sales expectations for the Resource
Industries segment and continued dealer machine inventory
reductions during the year, Caterpillar trimmed its fiscal 2013
sales outlook to a range of $56 to $58 billion from the previous
$57 to $61 billion. Caterpillar now expects to earn $6.50 per
share in 2013, down from the earlier projection of earnings of
$7.00 per share.
Caterpillar expects dealer machine inventory to decline about
$1.5 to $2 billion in the second half of 2013 and inventory will
be lower by about $3.5 billion at 2013 end compared with 2012
end. Over the past couple of quarters, orders for mining
equipment have been depressed and have been far below than their
respective year-ago levels. This led to lower expectations for
mining related sales in 2013.
Caterpillar ended the quarter with a backlog of $19.1 billion,
down 6% from $20.4 billion as of first quarter end. Caterpillar
will need additional orders during the year to meet its guidance.
The European debt crisis had a negative impact on Caterpillar's
results. The continuation of economic uncertainty in the region
will continue to be a headwind moving forward. Furthermore, the
Chinese economic growth has cooled down from robust levels
witnessed over the last decade.
The economic slowdown in 2012 unfavorably impacted
infrastructure and construction spending, which impacted sales at
Caterpillar. For 2013, Caterpillar expects China's economy to
grow 7.5% compared with 7.8% growth registered in 2012. The
Eurozone economy is expected to decline 0.5%.
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