) suffered yet another dismal quarter owing to reduced mining
demand and more-than-anticipated decline in dealer machine
inventory. The construction and mining equipment behemoth's
second quarter earnings slumped 43% to $1.45 per share and fell
well short of the Zacks Consensus Estimate of $1.70.
Revenues declined 16% to $14.6 billion in the quarter, missing
the Zacks Consensus Estimate of $14.9 billion. Sales volume
decreased $2.545 billion, mainly due to the impact of changes in
dealer new machine inventories. Dealers reduced inventories by
about $1 billion in contrast to an increase of about $300 million
in the prior-year quarter.
Further, a net negative impact of acquisitions and
divestitures of $140 million and unfavorable currency impact of
$120 million dragged down results. However, price realization was
flat compared with the year-ago quarter.
Caterpillar witnessed lower sales across all regions. Asia
Pacific was the biggest sufferer (down 25% year over year) due to
lower Australian mining sales in the Resource Industries segment.
However, the year-over-year sales increase in China was the
bright spot. Sales in EAME declined 18% followed by Latin America
registering a 14% fall. Sales in North America dipped 9%.
Cost of sales declined 12% to $10.8 billion in the quarter.
Selling, general and administrative (SG&A) expenses decreased
6% to $1.42 billion and research and development (R&D)
expenses went down 13% to $548 million.
Adjusted operating profit was $1.88 billion, a decline of 36%
from $2.9 billion in the second quarter of 2012. The
decline in operating profit was a result of lower volume,
increased manufacturing costs, and unfavorable impact from
acquisitions and divestitures, partially offset by decline in
SG&A and R&D expenses and favorable currency impact.
Machinery and Power System (M&PS) revenues decreased 17% to
$13.9 billion. Resource Industries' sales plunged 34% affected by
lower dealer new machine inventories. Construction Industries'
sales dipped 9% affected by lower volume mainly from changes in
dealer machine inventory. Power Systems' sales also fell 5% due
to lower volume, partially offset by higher price realization.
Financial Products' revenues increased 4% to $806 million as the
positive impact of higher average earning assets and increase in
Cat Insurance revenues were offset by an unfavorable impact of
lower average financing rates on new and existing finance
receivables and operating leases.
However, Financial Products' profits increased to $233 million
from $188 million in the first quarter of 2013. The increase was
attributed to a $31 million impact from lower claims experience
at Cat Insurance, offset by a $22 million unfavorable impact from
currency gains and losses.
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As of Jun 30, 2013, Caterpillar had cash and short-term
investments of $6.1 billion, up from $5.49 billion as of Dec 31,
2012. Total debt-to-capital ratio improved to 69% as of Jun 30,
2013 from 70% as of Dec 31, 2012. The debt-to-capital ratio at
M&PS decreased to 34.9% as of Jun 30, 2013 compared with
37.4% as of Dec 31, 2012.
Total cash flow from operating activities in the first half of
2013 was $4.6 billion compared with $2 billion in the prior-year
period. Operating cash flow at M&PS increased significantly
to $3.05 billion in the second quarter from $1.28 billion in the
prior-year quarter. During the quarter, Caterpillar resumed its
stock repurchase program and repurchased $1 billion of stock.
Fiscal 2013 Outlook
Due to continued dealer machine inventory reductions during 2013,
Caterpillar has trimmed its sales outlook to a range of $56 to
$58 billion from the previous $57 to $61 billion. Caterpillar
expects dealers to reduce inventory by about $3.5 billion in
2013. Caterpillar now expects to earn $6.50 per share in 2013,
down from the earlier projection of earnings of $7.00 per share.
Caterpillar expects overall world economic growth of over 2%, a
tad lower than the 2.3% growth in 2012. U.S. economic growth is
projected at 2% in 2013. China's economy is expected to improve
7.5% compared with 7.8% growth registered in 2012. Economic
growth in Africa/Middle East is projected at 3.5% and for CIS at
2.5% in 2013. The Eurozone economy is expected to decline 0.5%.
Caterpillar's sales started its downhill journey in Dec 2012,
hurt by tougher year-earlier comparisons and rising inventories
of unsold equipment. Caterpillar remains affected by slowing
demand and inventory correction as a result of overproduction
compared to demand. Caterpillar is struggling to bring production
Caterpillar's results have borne the brunt of continued economic
turmoil in Europe and its domino effect on the rest of the world.
Even though Caterpillar will benefit from the recovery in the
U.S. construction sector, the recent loss of sales momentum,
declining backlog, negative impact of the European debt crisis
Peoria, IL-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 #4 (Sell).
Caterpillar's peer, A
stec Industries Inc.
) reported second-quarter 2013 earnings of 48 cents per share, up
17% from the year-earlier quarter, short of the Zacks Consensus
Estimate of 55 cents. Its other peers,
H&E Equipment Services Inc.
The Manitowoc Company, Inc.
) are yet to announce their second quarter results.