On Nov 12, we downgraded
), a leading manufacturer of construction and mining equipment,
from Neutral to Underperform given its lackluster third quarter
results, trimmed outlook for 2013, declining backlog and negative
impact of the European debt crisis. Caterpillar retains a Zacks
Rank #5 (Strong Sell).
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Reduced mining demand led to a 43% slump in third quarter 2013
earnings of Caterpillar to $1.45 per share and an 18% decline in
revenues to $13.4 billion in the quarter. Sales volume decreased
$2.7 billion, with changes in dealer inventories accounting for
over 50% of the decline.
Caterpillar's worldwide sales declined 9% for the three months
ending Sep 2013, the tenth consecutive month of sales decline.
Latin America, which has otherwise outperformed other regions in
2013 with positive growth in contrast to decline across the
board, disappointed again with a 10% dip in September, worsening
from the 3% sales dip in August. Asia dragged down overall
results with a 24% decline and EAME was down 11%.
Caterpillar forecasts sales in the fourth quarter to be slightly
higher than in the third quarter, but it cautioned that earnings
per share will be lower due to higher costs resulting from
seasonal spending patterns. The company also expects another
substantial decline in dealer inventories in the fourth quarter.
For fiscal 2013, Caterpillar now projects sales of $55 billion,
down from the previous range of $56 billion to $58 billion.
Caterpillar now expects to earn $5.50 per share in 2013, down
from the earlier projection of earnings of $6.50 per share due to
lower sales volume including an unfavorable mix of products and
lower price realization. This is the third quarter in a row in
which Caterpillar has trimmed its fiscal 2013 guidance.
Caterpillar ended the quarter with a backlog of $19.1 billion
compared with $23.1 billion at the end of the third quarter of
2012. The decline was due to a substantial reduction in
mining-related products within Resource Industries, which was
partially offset by an increase in Construction Industries.
Caterpillar will need additional orders during the year to meet
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,
emerging markets, like China, are now showing a contraction from
robust levels witnessed over the last decade. Major mining
companies are cutting their spending budgets to prioritize
improved production at existing projects rather than resorting to
new project expansion. These headwinds could weigh on
Caterpillar's growth and operating performance over the next
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