) recorded machines sales growth of 21% for the three months ending
February 29, 2012, keeping up its 22-month run of positive sales
growth. However, the sales growth has dipped further from the
lowest growth rate of 30% last year and from the 27% clip recorded
in January 2012. Engine sales increased 13% across the globe.
Caterpillar's growth rate had hit rock bottom in 2011 in
November last year recording a growth rate of 30%. Caterpillar
suffered the same fate in December as well. Even though Caterpillar
has seen sales ramping in the last 22 months, the rate of increase
has of late been tempered by tougher year-on-year comparisons and
weakening economic conditions, especially in Europe. Sales growth
is now less than one-third of the highest level of 66% in 2011.
Region-wise, the company registered the maximum growth of 39% in
North America, followed by Asia/Pacific and Rest of the World (ROW)
with a 20% and 14% year-over-year increment. Europe, Africa, and
the Middle East (EAME) and Latin America were up 13% and 6%,
Caterpillar in its largest market -- North America -- has
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
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 performance in EAME and ROW has further deteriorated from
the lows experienced in January 2012. In 2011, the lowest growth
recorded by the two regions was 18% and 20%, respectively in
December. Sales in EAME were a drastic drop from the 53% growth
recorded in February 2011 and one-fifth the scorching pace of 65%
recorded in May 2011. The sharp downside was primarily due to the
sovereign debt crisis in Europe.
In Latin America, the growth rate has even slid from the lowest
pace of 8% in November last year and a landslide from the 76%
posted in February 2011.
In Reciprocating & Turbine Engine Retail Statistics, sales
were up 13% year over year globally. Results are disappointing
considering the 22% growth recorded in the sequentially preceding
month and the 31% growth in February 2011. However, it was a tad
higher than the lowest growth rate of 12% in September 2011.
Among the end markets, sales to the petroleum sector and
transportation reported the maximum increase of 22% year over year.
However, sales to the petroleum sector moderated from the 29%
growth in January and 59% in February last year. Electric Power
increased 6%, a disappointing performance when compared to the 24%
year-over-year climb in January 2012 and 23% in February 2011.
The Industrial sector continued to be a disappointment with
sales dipping 1%, a stark contrast to the 1% increase in January
2012 and 54% growth in February last year.
Fourth Quarter and Fiscal 2011 Recap, Guidance
During the recently reported fourth quarter, Caterpillar's
revenues surged 35% to a record $17.2 billion, driven by higher
sales volume, especially for new equipment. Excluding the impact of
the acquisition of Bucyrus International, revenues went up 24% to
$15.9 billion, comparing favorably the Zacks Consensus Estimate of
For fiscal 2011, total revenue increased 35% to $57.6 billion,
excluding the impact of Bucyrus. Including the impact, Caterpillar
saw all-time record sales of $60.1 billion, up 41% from 2010,
driven by increased sales volume (particularly new equipment) on
higher end-user demand. Revenues sailed past the Zacks Consensus
Estimate of $58.1 billion.
For 2012, the company expects to record sales in a range of
$68.0 billion to $72.0 billion for 2012, which includes accretions
from Bucyrus and Motoren-Werke Mannheim Holding GmbH. EPS is
forecast at $9.25 per share on the back of strong revenues.
In addition to the European debt crisis, signs of a slowdown in
China have triggered concerns. Earlier this month, China cut its
2012 growth target to an eight-year low of 7.5%. A slowing
Chinese economy will have a negative impact on infrastructure and
On a positive note, despite an economic slowdown in China,
Caterpillar's sales in that country were higher in the fourth
quarter of 2011 compared with the fourth quarter of 2010 as dealer
deliveries to end users, even though at low levels, were better
than the industry overall.
Furthermore machine production was sufficient to allow dealers
to build inventory for the upcoming 2012 selling season.
Caterpillar and its dealers have purposely built additional new
machine inventory in China to continue to improve its competitive
position during the critical selling season that typically follows
the Chinese New Year.
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 continuing demand for
construction and mining equipment, in the long term, triggered by
industrialization and urbanization. Besides, the Bucyrus
acquisition will bring in more synergies. The shares of Caterpillar
presently retain a Zacks #2 Rank (short-term Buy
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
CNH Global NV
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