) poor run continued in third quarter of 2013 as well, plagued by
lower mining demand. The construction and mining equipment
behemoth's third quarter earnings dropped 43% to $1.45 per share.
Earnings fell well short of the Zacks Consensus Estimate of $1.68
-- a negative earnings surprise of 14%.
Revenues declined 18% to $13.4 billion in the quarter, lagging
the Zacks Consensus Estimate of $14.6 billion. Year to date,
revenues dipped 17% due to reduced mining sales. Sales volume
decreased $2.7 billion, with changes in dealer inventories
accounting for over 50% of the decline.
Moreover, dealer deliveries to end-users declined, and more so
in Resource Industries. Dealers reduced inventories by about $500
million from the second quarter end and were $2.2 billion lower
than 2012 end.
A net negative impact of acquisitions and divestitures of $87
million, unfavorable price realization of $57 million and
unfavorable currency impact of $188 million due to a weaker
Japanese yen also dragged down results.
Caterpillar witnessed lower sales across all regions. Asia
Pacific was the biggest sufferer (down 32% year over year) due to
lower Australian mining sales. However, the 30% year-over-year
sales increase in China was the bright spot. Sales in North
America and Europe, Africa, Middle East (EAME) both declined 18%
due to unfavorable changes in dealer inventories followed by
Latin America registering a 12% fall.
Cost of sales improved 16% to $9.77 billion in the quarter.
Selling, general and administrative (SG&A) expenses decreased
10% to $1.3 billion and research and development (R&D)
expenses went down 26% to $469 million. The overall decline in
manufacturing operating expenses was due to lower discretionary
and program spending, temporary factory shutdowns, and layoffs as
part of cost reduction measures in response to lower volumes.
Operating profit was $1.4 billion, a decline of 46% from $2.6
billion in the third quarter of 2012. The decline in
operating profit was a result of lower volume, unfavorable impact
from acquisitions and divestitures and price realization,
partially offset by decline in manufacturing, SG&A and
R&D expenses and favorable currency impact.
Machinery and Power System (M&PS) revenues decreased 19% to
$12.7 billion. Resource Industries' sales was the worst affected,
plunging 42% owing to lower dealer new machine inventories and
lower sales volume. Construction Industries' sales dipped 7% due
to unfavorable impact of currency, lower sales volume and
unfavorable price realization.
Power Systems' sales also fell 7% due to lower volume mainly
for electric power, rail and petroleum applications. Machinery
and Power System segment operating profit slid 49% to $1.255
billion in the quarter, dragged down by a 63% plunge in Resource
Industries and a 43% dip in Construction.
ASTEC INDS INC (ASTE): Free Stock Analysis
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Financial Products' revenues increased 4% to $807 million. The
positive impact of higher average earning assets (barring
Asia/Pacific) and increase in Cat Insurance revenues in North
America were somewhat offset by declines in EAME and Latin
America, and unfavorable impact of lower average financing rates
on new and existing finance receivables and operating leases.
Financial Products' profits increased to $218 million from $190
million in the third quarter of 2012. The increase was attributed
to higher average earning assets and a favorable impact from
lower claims experience at Cat Insurance.
As of Sep 30, 2013, Caterpillar had cash and short-term
investments of $6.3 billion, up from $5.5 billion as of Dec 31,
2012. Total debt-to-capital ratio improved to 69% as of Sep 30,
2013 from 70% as of Dec 31, 2012. The debt-to-capital ratio at
M&PS decreased to 34.1% as of Sep 30, 2013 compared with
37.4% as of Dec 31, 2012.
Total cash flow from operating activities in the first nine
months of 2013 was $7.6 billion compared with $3.2 billion in the
prior-year period. Operating cash flow at M&PS increased
significantly to $2.1 billion in the third quarter from $994
million in the prior-year quarter. During the quarter,
Caterpillar repurchased $1 billion of stock.
Fiscal 2013 Outlook
Caterpillar expects sales in the fourth quarter to be slightly
higher than in the third quarter. However, earnings per share are
expected to 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.
For fiscal 2013, Caterpillar trimmed its sales outlook to $55
billion from the previous range of $56 to $58 billion due to
lower sales expectations for Resource Industries (down 40%) and
Power Systems and Construction Industries (each down 5%).
Caterpillar now expects to earn $5.50 per share in 2013, down
from the earlier projection of earnings of $6.50 per share due to
lower sales volume including an unfavorable mix of products and
lower price realization.
A Sneak Peak into 2014
Caterpillar expects revenues in 2014 to be flat with 2013 or move
up or down in a 5% range. Construction Industries is expected to
log sales growth, Power Systems sales will be flat, while sales
in Resource Industries is expected to dip.
Economic indicators suggest that growth in the United States,
Europe, Japan and China in 2014 should be in line or exceed 2013
growth. Caterpillar projects world economic growth to improve
from 2.1% in 2013 to about 3% in 2014. However, lingering risks
and uncertainties such as U.S. fiscal, monetary policy actions
and situation in Europe may hinder positives from global economic
Caterpillar's sales started its downhill journey in Dec 2012,
hurt by tougher year-on-year 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
under control. Caterpillar's results have borne the brunt of
continued economic turmoil in Europe and its domino effect on the
rest of the world.
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 remained strong
despite the drop in profits and is expecting 2013 to be its
second best year in history for cash flow. Strong cash flow has
enabled the company to improve its balance sheet, repurchase
shares and raise its dividend by 15% and also reduce its debt
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).
Astec Industries Inc.
) reported third-quarter 2013 earnings of 28 cents per share,
down 3.4% from the year-earlier quarter, short of the Zacks
Consensus Estimate of 37 cents. Its other peers,
H&E Equipment Services Inc.
The Manitowoc Company, Inc.
) are yet to announce their third quarter results.