) shares slipped 1.2% to close at $82.68 on Nov 20 as it
announced a 12% decline in global retail sales for the three
months ending Oct 2013. The drop was dangerously close to the
year's lowest drop of 13% that was registered in February. With
this, the construction and mining equipment behemoth reported its
eleventh consecutive month of sales decline. Sales dropped across
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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 positive sales
growth and there was no looking back as sales growth picked up
riding on the wave of strong equipment demand both domestically
as well as in the emerging markets.
However, the sales growth started declining in 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 otherwise been the main driver of
construction and mining demand.
As mentioned earlier, so far in 2013, Caterpillar had fared the
worst in February with a decline of 13%. Since then, the narrower
decline of 7% in May sparked some hopes, but it was short-lived
as the sales graph again started trending downward.
In October, Caterpillar witnessed declines across all regions
barring. Even North America, Caterpillar's largest market in
terms of geography which had registered positive growth in the
past two months, disappointed with a 2% dip.
Sales in Latin America dropped 8% in October. The region had
enjoyed a 10-month stint of positive growth which abruptly ended
in Jul 2013. 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
have been affecting sales in the region lately.
Asia dragged down overall results with a 26% decline and sales in
Europe, Africa, the Middle East (EAME) were at its worst in 2013
with a 14% drop. Sales in the region had dipped in single digits
till June. Sales in ROW (Rest of the World) dipped 17%.
Reciprocating & Turbine Engine Retail sales dipped 9% year
over year globally, hitting a trough in 2013. Sales to the
industrial markets increased 16%, the only bright spot in the
sales report. Sales to transportation and electric power markets
plunged 27% and 21%, respectively. The petroleum market however
recorded flat sales.
Caterpillar's results in the first nine months of 2013 has been
disappointing as revenues dipped 17% year over year to $41.2
billion, primarily due to reduced mining demand and decline in
Even though sales in the fourth quarter is expected to be
slightly higher than in the third quarter, earnings per share may
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. Caterpillar has trimmed
its fiscal 2013 guidance for three quarters in a row. For fiscal
2013, Caterpillar now projects sales of $55 billion and earnings
of $5.50 per share in 2013.
The recovery in the U.S. construction sector is expected to
provide a much needed boost to Caterpillar's revenues. However,
declining backlog, recent weakness in the emerging markets, and
negative impact of the European debt crisis could weigh on
Caterpillar's growth and operating performance over the next
several quarters. In such a scenario, Caterpillar is looking to
curtail costs and get rid of some hindrances by resorting to
temporary layoffs, shutting down or shifting operations.
Caterpillar currently retains a Zacks Rank #5 (Strong Sell).
Stocks in the industrial products sector with a favorable Zacks
) with a Zacks Rank #1, and
Alamo Group, Inc.
H&E Equipment Services Inc.
), each with a Zacks Rank #2 (Buy).