The year 2013 has so far been inauspicious for construction
and mining equipment behemoth,
) as worldwide sales declined 13% for the three months ending Feb
2013, the third consecutive month of declining sales following a
disappointing fourth quarter 2012 results. This news led to
Caterpillar shares sinking 2%.
The growth rate has, in fact, worsened from the 4% and 1% dip
reported in Jan 2013 and Dec 2012, respectively. Caterpillar
sales started its downhill journey in Dec 2012, hurt by tougher
year-earlier comparisons and rising inventories of unsold
equipment. Caterpillar had earlier witnessed negative sales
growth in Apr 2010 and since then enjoyed a stint of positive
growth, benefiting from strong equipment demand both domestically
as well as in the emerging markets.
In Feb 2013, Caterpillar witnessed declines across all regions
barring Latin America, which held its own with 3% growth. Sales
dropped 12% annually in North America, the company's largest
market in terms of geography. In Asia, a weak construction
equipment market in China and falling demand for mining equipment
led to a 26% decline, further exacerbating from the 7% decline in
Dec 2012 and 12% in Jan 2013. Sales in EAME registered a
drop of 9% and ROW (Rest of the World) sales plummeted 13%.
Investments in infrastructure construction and mining in
China, Australia and other developing economies have spurred the
demand for Caterpillar's machinery, thereby contributing to brisk
growth in Asia/Pacific so far. However, of late, China's attempts
to fight inflation have affected Caterpillar's sales in the
In Reciprocating & Turbine Engine Retail Statistics, sales
went down 7% year over year globally, flat compared with three
months ending Jan 2013 but deteriorating from the 2% dip in the
Dec 2012 period. Among the end markets, sales to the
transportation sector were the only bright spot with 15% growth.
Other markets remained in the red with the industrial sector
being the worst affected with a 25% decline followed by Electric
Power and petroleum sector, both dipping 8% each.
Caterpillar's fourth quarter results were also disappointing
with revenues declining 7% to $16.1 billion due to the impact of
changes in dealer new machine inventories - the first quarterly
revenue drop since the March 2010 quarter. Among the regions,
sales growth in Latin America was the only saving
The situation is not expected to improve in the first quarter
of 2013 as Caterpillar expects sales to be significantly lower on
an annual basis as dealers are anticipated to continue to lower
their new machine inventories. The company foresees earnings to
be affected by lower-than-expected sales and the negative cost
impact of continuing low production levels and declining
inventory. For fiscal 2013, sales are expected to be in the range
of $60 to $68 billion and earnings between $7.00 and
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.
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
and a slowing Chinese economy remain concerns.
Caterpillar recently announced job cuts at its Belgium plant
due to high costs and weak European economy, similar to the
strategy adopted by
Ford Motor Co.
) in the region. Caterpillar currently retains a Zacks Rank #3
(Hold). In the same industry,
Deere & Company
) holds a Zacks Rank #2 (Buy) and is a more favorable option for
investors given its exposure to the agriculture sector.
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