) went up 6.8% in pre-market trading as the company reported a 5%
increase in its fourth-quarter 2013 earnings to $1.54 per share
-- the only quarter in the fiscal 2013 to report a y-o-y
Results outperformed the Zacks Consensus Estimate of $1.29 and
with this earnings beat, the construction and mining equipment
behemoth has broken the jinx of negative earnings surprises for
straight four quarters. The company's incessant efforts to cut
down costs helped mitigate the effect of lower mining-related
sales on its profits.
Including a goodwill impairment charge of 87 cents per share
and a positive impact of tax settlement of 45 cents per share in
the year-ago quarter, earnings were at $1.04. Compared to this
base, earnings in the fourth quarter increased 48% year over
4Q Revenues Down Due to Lower Mining Demand, Beats
Revenues declined 10% to $14.4 billion in the quarter, but
were well ahead of the Zacks Consensus Estimate of $13.5 billion.
Drop in sales of new machines for mining continued to drag down
revenues in the quarter. Weaker results from the Resource
Industries segment mitigated the improvement in Construction
Industries, Power Systems and Financial Products.
In the quarter, Caterpillar witnessed lower sales across all
regions barring North America in the quarter which increased 7%.
Asia/Pacific was the biggest sufferer (down 29% year over year)
due to lower Australian mining sales. However, the 20%
year-over-year sales increase in China was the bright spot. Latin
America registered a 19% drop followed by Europe, Africa and
Middle East (EAME) declining 8%.
Costs & Operating Profit in 4Q
Cost of sales declined 11% to $10.5 billion in the quarter,
thanks to the company's cost reduction initiatives. Likewise,
selling, general and administrative (SG&A) expenses decreased
11% to $1.4 billion and research and development (R&D)
expenses went down 24% to $467 million.
Operating profit was $1.452 billion, down 10% from an adjusted
$1.618 billion in the fourth quarter of 2012. Benefits from lower
manufacturing costs, decreased SG&A and R&D expenses and
the favorable impact of currency were partially offset by lower
sales volume, which included an unfavorable mix of products.
Segment Results in 4Q
Machinery and Power System (M&PS) revenues decreased 11%
to $13.6 billion. Resource Industries' sales plunged 48% owing to
lower end-user demand across all regions. Construction
Industries' sales increased 20% driven by higher sales volume,
partially offset by the unfavorable impact of currency and price
realization. Power Systems' sales increased 5% due to favorable
changes in dealer inventories.
Machinery and Power System segment's operating profit
increased 37% to $1.27 billion in the quarter, dragged down by a
77% plunge in Resource Industries.
Financial Products' net revenues increased 5% to $756 million,
driven by the positive impact of higher average earning assets
(barring Asia/Pacific). Financial Products' profits increased to
$266 million from $180 million in the fourth quarter of 2012. A
$61 million decrease in the provision for credit losses at Cat
Financial and a $16 million favorable impact from currency gains
and losses led to the improvement.
Earnings and Revenues Dip in 2013, But Ahead of
Consensus and Guidance
A fourth-quarter recovery was not sufficient to salvage
Caterpillar's fiscal 2013 results. In 2013, earnings per share
were at $5.75, a 32% decline from $8.48 in the prior fiscal.
Nevertheless, it beat the Zacks Consensus Estimate as well as the
company guidance of $5.50.
Revenues dipped 16% to $55.6 billion from $65.8 billion in
fiscal 2013 mainly due to decline in mining sales. It however
outpaced the Zacks Consensus Estimate of $54.3 billion and the
company's guidance of $55 billion.
Caterpillar ended fiscal 2013 with cash and short-term
investments of $6.1 billion, up from $5.5 billion as of fiscal
2012-end. Total debt-to-capital ratio improved to 64% as of Dec
31, 2013, from 70% as of Dec 31, 2012. The debt-to-capital ratio
at M&PS improved substantially to 29.7% as of Dec 31, 2013,
compared with 37.4% as of Dec 31, 2012. This was the lowest
debt-to-capital ratio in over 25 years.
Total cash flow from operating activities in 2013 almost
doubled to $10.2 billion from $5.2 billion in the prior fiscal.
Operating cash flow at M&PS was a record at $9 billion in
2013, up from $4.2 billion in 2012, thanks to the $2.9 billion of
inventory reduction during the year.
During the year, Caterpillar repurchased $2 billion of stock.
The company intends to repurchase approximately $1.7 billion of
its common stock during the first quarter of 2014 and complete
its existing $7.5 billion repurchase authorization.
The authorization, approved by the Caterpillar's board of
directors in 2007, is slated to expire on Dec 31, 2015. In
addition, Caterpillar's board of directors has approved a new $10
billion stock repurchase program that will expire on Dec 31,
Caterpillar also hiked its quarterly dividend by 15% to 60
cents per share in 2013, marking the highest percentage increase
in dividend since the financial crisis of 2008.
At the end 2013, Caterpillar's backlog was at $18 billion,
down $1.1 billion sequentially and $2.2 billion year over year.
The annual decline was due to reduction in order backlog for
mining-related products in Resource Industries and a slight
decline in Power Systems, which offset a substantial increase in
Outlook for 2014
Caterpillar expects revenues in 2014 to be flat with 2013 or
move up or down in a 5% range. Excluding restructuring costs,
earnings per share is expected at $5.85. Construction Industries
and Power Systems are expected to log sales growth on the heels
of better economic growth. However, sales in Resource Industries
will continue to be a deterring factor, as mining companies will
continue to reduce their capital expenditures in 2014.
Economic indicators have shown improvement in many countries,
which point toward a rebound in the world economy. Caterpillar
projects world economic growth to improve from 2% in 2013 to
about 3% in 2014. However, lingering risks and uncertainties such
as the U.S. fiscal, monetary policy actions and unfavorable
situations in Europe may hinder positives from leading to global
Caterpillar had been affected by slowing demand and inventory
correction as a result of overproduction compared to demand.
Caterpillar lowered its inventory by $2.9 billion in 2013, and
dealers lowered their inventories by more than $3 billion. While
these inventory reductions were a significant sales and
production headwind for Caterpillar in 2013, their significant
impact on its sales is now largely over.
To combat the decline in mining-related demand, Caterpillar
remains focused on reducing costs by shifting production between
certain facilities, rationalization of its smaller facilities,
workforce reductions and reductions in program spending.
Caterpillar's cash flow has thus remained strong despite the drop
in profits. Strong cash flow has enabled the company to improve
its balance sheet, repurchase shares and raise its dividend and
also reduce its debt level.
Meanwhile, Caterpillar has continued to build up its share of
in the excavator market in China. Total sales and revenues in
China in 2013 were about $3.5 billion, up more than 20% year over
year, faring substantially better than the industry-wide decline
of 3%. Caterpillar's market share also increased to 12% in China.
The Chinese excavator market is expected to grow and Caterpillar
can capitalize on the demand, given its expanding market.
Even though Caterpillar will benefit from the recovery in the
U.S. construction sector, declining backlog, continuing lower
mining demand and negative impact of the European debt crisis
Peoria, Ill.-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 currently retains a Zacks Rank #3 (Hold). Some
better-ranked stocks in the sector include
Zebra Technologies Corp.
Columbus McKinnon Corp.
). While Terex and Zebra Technologies hold a Zacks Rank #1
(Strong Buy), Columbus McKinnon holds a Zacks Rank #2 (Buy).
CATERPILLAR INC (CAT): Free Stock Analysis
COLUMBUS MCKINN (CMCO): Free Stock Analysis
TEREX CORP (TEX): Free Stock Analysis Report
ZEBRA TECH CL A (ZBRA): Free Stock Analysis
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