), the world's largest manufacturer of construction and mining
equipment, recently joined the bandwagon of companies who have
trimmed their revenue and earnings expectations in the wake of
weaker-than-expected growth in the global economy. This news led to
a 2.4% fall in Caterpillar share prices to $88.73 in after-hours
Factoring in modest and insipid economic growth through 2015 and
a less likely scenario of a worldwide recession, Caterpillar
expects to generate revenues in the range of $80 to $100 billion in
2015. This is expected to translate into earnings per share in the
range of $12 to $18 per share. This is based on the assumption of
modest price realization and restrained material cost
The company also expects unrelenting focus on cost control as
well as modest efficiency improvement in its factories to
contribute to its earnings. Caterpillar had earlier estimated
earnings between $15 and $20 per share. The company remains
committed to delivering results that will place it in the top 25%
of the S&P 500 for total shareholder return.
For 2012, the company remains firm on its guided record sales of
$68 billion to $70 billion and EPS forecast at $9.60. Caterpillar
will discuss its 2013 expectations when it releases its quarterly
earnings next month. The year 2013 is expected to be like 2012 with
respect to worldwide economic growth with better growth expected in
The company remains hopeful that construction activity
in the emerging markets will witness modest improvement.
The company plans to remain focused on its cost control measures
and continue to invest in research and development. However,
Caterpillar has opted to be cautious toward acquisitions and
investments in expansion.
This development comes after a year Caterpillar acquired Bucyrus
Inc., a South Milwaukee-based manufacturer of surface and
underground mining equipment. The $8.8 billion buyout of Bucyrus
was the biggest deal ever in Caterpillar's history. It capitalized
on the rising demand for coal and minerals triggered by growth in
the emerging nations.
The Caterpillar-Bucyrus combined portfolio expanded
Caterpillar's mining equipment product line, resulting in the most
expansive product offering in the mining equipment industry. The
acquisition positioned Caterpillar as the leading global mining
original equipment manufacturer. The company also acquired
underground coal mining equipment manufacturer ERA Mining Machinery
Limited in China to strengthen its presence in the Chinese mining
industry in November last year.
However, the company's plans to expand in the mining and China
is currently under pressure as mining companies are revisiting and
trimming their capital expenditures plans following the slowdown in
economic expansion in China, the world's largest user of coal and
metals. Prices for coal and iron ore have dropped more than 20%
this year due to slowing growth in China and European debt
Among other miners,
) plans to cut its 2013 mining budget and
BHP Billiton Limited
) delayed an estimated $68 billion of projects. Approximately 70%
of spending in mines is for large trucks and thus the cutback
paints a grim picture for Caterpillar.
All said, we maintain our Neutral recommendation on Caterpillar.
Furthermore, the recent loss of sales momentum, margin headwinds,
negative impact of the European debt crisis and a slowing Chinese
economy remain concerns. The quantitative Zacks #3 Rank (short term
Hold rating) for the company indicates no clear directional
pressure on the stock over the near term.
Peoria, Illinois-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 operates two divisions - Machinery and Power Systems
(M&PS) and Financial Products. Caterpillar competes with the
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