We have maintained our underperform recommendation on
), leading manufacturer of construction and mining equipment,
given its lackluster first quarter results, trimmed outlook for
2013, weak demand for its mining equipment, recent loss of sales
momentum, declining backlog and negative impact of the European
debt crisis. Caterpillar retains a short-term Zacks Rank #4
Reduced mining demand coupled with a decline in inventory led to
a 45% slump in first quarter 2013 earnings of Caterpillar to
$1.31 per share. Revenues declined 17% to $13.2 billion in the
quarter. Sales volume decreased $2.671 billion, mainly due to the
impact of changes in new machine inventories with dealerships.
Caterpillar remains affected by slowing demand and inventory
correction as a result of higher production compared to demand.
The biggest challenge will be the continued right-sizing of
production volumes to match slowing orders from dealers. Earnings
will continue to be affected by lower-than-expected sales and the
negative cost impact of continuing low production levels and
Citing weak demand for its mining equipment, Caterpillar trimmed
its sales outlook to a range of $57 to $61 billion from the
previous $60 to $68 billion. Caterpillar now expects to earn
$7.00 per share in 2013, down from the earlier projection of
earnings between $7.00 and $9.00 per share.
Caterpillar ended the quarter with a backlog of $20.4 billion,
flat compared with at the end of 2012, but a significant decline
compared to the end of the first quarter of 2012. Caterpillar
will need additional orders during the year to meets its
Furthermore, Caterpillar's worldwide sales declined 11% for
the three months ending Mar 2013, the fourth consecutive month of
declining sales. Caterpillar's sales growth turned negative in
December for the first time in 30 months, hurt by tougher
year-earlier comparisons and rising inventories of unsold
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The European debt crisis has 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.
Other Stocks to Consider
Other stocks in the industrial products sector with a favorable
Zacks Rank are
H&E Equipment Services Inc.
Alamo Group, Inc.
CNH Global NV
) with a Zacks Rank #2 (Buy), all carrying Zacks Rank #2