) shares plummeted 3.4% to close at $84.75 on Sep 20 as it
announced a 10% decline in global retail sales for the three
months ending Aug 2013. With this, the construction and mining
equipment behemoth reported its ninth consecutive month of sales
decline. Asia recorded its worst show so far this year while
North America was the only saving grace with a 1% increase.
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 2012, the company reverted to positive sales
growth and sales growth trajectory improved since then, riding on
the wave of strong equipment demand both domestically as well as
in the emerging markets.
However, the sales growth again started declining in Dec 2012,
hurt by tougher year-earlier comparisons, rising inventories of
unsold equipment, weak economic conditions, and slowing down of
the Chinese economy, which had otherwise been the main driver of
construction and mining demand.
So far in 2013, Caterpillar had fared the worst in February with
a decline of 13%. The narrower decline of 7% in May sparked some
hopes, but it was short-lived as the sales graph again started
trending downward and June reported an 8% fall, which further
deteriorated to 9% in July and 10% in August.
In August, Caterpillar witnessed declines across all regions
barring North America, its largest market in terms of geography.
Sales edged up a meagre 1%. Nevertheless it was an improvement as
it reversed the spate of declines suffered in the past eight
Latin America, which so far in 2013 outperformed other regions
with positive growth in contrast to decline across the board,
disappointed with a 3% sales dip. This ended its positive run for
the last 10 months. Growth rate had escalated to 28% in April
this year as demand for construction and infrastructure projects
had spurred equipment demand in Brazil, as it prepares for the
2014 World Cup and 2016 Olympic Games. However, civil unrest in
Brazil affected sales in the region in August.
Asia dragged down overall results with a 30% decline, the worst
performance so far in the year. Sales in EAME were also at its
worst in 2013 with a 12% drop, flat with July. Sales in the
region had dipped in single digits till June and had posted a 1%
climb in January. Sales in ROW (Rest of the World) dipped 17%.
Reciprocating & Turbine Engine Retail sales dipped 6% year
over year globally, a disappointment from the 1% improvement in
June and flat year over year sales reported in July. Sales to the
industrial markets increased 7% and to the electric power markets
and transportation increased 5% each. The petroleum market
however continues to remain in the red with sales dipping 21% -
the weakest performance in 2013.
Caterpillar's results in the first half of 2013 has been
disappointing as revenues dipped 17% year over year to $27.8
billion, primarily due to reduced mining demand and decline in
inventory. Citing further continued dealer machine inventory
reductions during 2013, Caterpillar has trimmed its sales outlook
to a range of $56 billion to $58 billion from the previous $57
billion to $61 billion. Caterpillar expects dealers to reduce
inventory by about $3.5 billion in 2013.
However, China's recent data that suggest that its economy is
showing some positives offer some hope to Caterpillar. To
elaborate, China's industrial production grew 10.4% in August,
0.7 percentage point higher than that in July.
Export growth has been a major component supporting China's
rapid economic expansion. Exports rose 7.2% in August, up from
5.1% in July and the 3.1% drop in June. China's manufacturing
Purchasing Managers Index (PMI) reached a 16-month high of 51.0
in August, up from 50.3 in July, beating market expectations.
A reading above 50 indicates an expanding economy. This is
positive news for Caterpillar as the company will once again
benefit from the renewal in demand for construction and mining
machinery in China.
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A recovery in the U.S. construction sector will also drive
revenues in the domestic front. The Federal Reserve's unexpected
announcement to maintain its quantitative easing program for
keeping interest rates low will provide support to the
homebuilding sector. However, declining backlog, recent weakness
in the otherwise outperforming Latin American market, and
negative impact of the European debt crisis remain overhangs.
Caterpillar currently retains a Zacks Rank #3 (Hold). Other
stocks in the industrial products sector with favorable Zacks
Alamo Group, Inc.
), with a Zacks Rank #1 (Strong Buy), and
), with a Zacks Rank #2 (Buy).