Reduced mining demand coupled with a decline in inventory led
to a 45% slump in first quarter 2013 earnings of construction and
mining equipment behemoth,
) to $1.31 per share. Reported earnings also trailed the Zacks
Consensus Estimate of $1.34.
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Revenues declined 17% to $13.2 billion in the quarter, falling
short of the Zacks Consensus Estimate of $13.6 billion. Sales
volume decreased $2.671 billion, mainly due to the impact of
changes in dealer new machine inventories. Dealers reduced
inventories by about $700 million in contrast to an increase of
about $875 million in the prior-year quarter. A net negative
impact of acquisitions and divestitures of $171 million and $91
million unfavorable currency impact further dragged down results.
However, increased price realization of $129 million was the only
bright spot in the quarter.
Caterpillar witnessed lower sales across all regions with Asia
Pacific suffering the worst (down 21% year over year), closely
followed by North America registering a 20% fall. Sales in EAME
and Latin America declined 16% and 5%, respectively. Even though
sales declined overall in Asia Pacific, sales increased in China
and remained flat in Japan.
Cost of sales declined 14% to $9.6 billion in the quarter.
Selling, general and administrative (SG&A) expenses increased
4% to $1.39 billion and research and development (R&D)
expenses went down 4% to $562 million.
Adjusted operating profit was $1.6 billion, a decline of 43% from
$2.8 billion in the first quarter of 2012. Lower volume,
increased manufacturing costs, unfavorable impact from
acquisitions and divestitures, partially offset by increased
operating profit at Financial Products and the favorable impact
of currency mainly due to the Japanese yen, led to the overall
decline in operating profit.
Machinery and Power System (M&PS) revenues decreased 18% to
$12.5 billion. Resource Industries' sales plunged 23% affected by
lower dealer new machine inventories. Construction Industries'
sales plummeted 17% affected by lower volume and the unfavorable
impact of currency, partially offset by favorable price
realization. Power Systems' sales also fell 12% on lower volumes.
Financial Products' revenues increased 4% to $795 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. Financial Products' profits,
however, increased to $273 million from $205 million in the first
quarter of 2012. The increase was attributed to a $49 million
impact from lower claims experience at Cat Insurance and a $34
million favorable impact of higher average earning assets.
As of Mar 31, 2013, Caterpillar had cash and short-term
investments of $5.98 billion, up from $5.49 billion as of Dec 31,
2012. Total debt-to-capital ratio improved to 69% as of Mar 31,
2013 from 70% as of Dec 31, 2012. The debt-to-capital ratio at
M&PS decreased to 36.4% as of Mar 31, 2013 compared with
37.4% as of Dec 31, 2012.
Total cash flow from operating activities in the first quarter
was $1.4 billion compared with $315 million in the prior-year
quarter. Operating cash flow at M&PS increased significantly
to $1.098 billion in the first quarter from $234 million billion
in the prior-year quarter, mainly due to changes in inventory,
higher short-term incentive compensation payments, offset by
lower profit and changes in accounts payable and customer
Fiscal 2013 Outlook
Citing weak demand for its mining equipment, Caterpillar has
trimmed its sales outlook to a range of $57 to $61 billion from
the previous $60 to $68 billion. Caterpillar now expects to earn
$7.00 per share in 2013, down from the earlier projection of
earnings between $7.00 and $9.00 per share.
Caterpillar expects overall world economic growth of about 2.5%,
a tad improvement from 2.3% in 2012. U.S. economic growth is
projected at 2.5% in 2013. China's economy is expected to improve
8%, up from 7.8% in 2012. Construction activity is increasing in
the region and is expected to remain so for the balance of the
year. Economic growth in both Africa/Middle East and CIS will be
over 3.5% in 2013, similar to growth rates achieved in 2012. The
Eurozone economy is expected to decline 0.5%. However, the rest
of Europe is expected to witness modest growth, leading to a
marginal growth across Europe in 2013.
Resumption of Stock Repurchase
Caterpillar's Board of Directors had authorized the repurchase of
$7.5 billion worth of common stock of its stock in Feb 2007, and
consequently in Dec 2011 was extended through Dec 2015. Till
2008, Caterpillar had expended $3.8 billion of the $7.5 billion
authorization and no shares of stock have been repurchased since
then. Caterpillar has now decided to resume the program given the
recent decline in the Caterpillar stock price combined with
balance sheet strength and positive cash flow. Caterpillar plans
to resume the share repurchases in the second quarter and
repurchase about $1 billion of stock under the existing
The weaker-than-expected earnings is not a surprise as
Caterpillar had earlier hinted that that first quarter 2013 sales
will be significantly lower on a year-over-year basis as dealers
were expected to continue to lower their new machine inventories
to match demand. Reduced sales and the negative cost impact of
continuing low production levels and declining inventory were
expected to affect earnings.
Caterpillar sales started its downhill journey in Dec 2012, hurt
by tougher year-earlier comparisons and rising inventories of
unsold equipment. Caterpillar's sales performance deteriorated
13% in February, worsening from the 4% and 1% dip reported in Jan
2013 and Dec 2012, respectively. 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
Owing to reduced global demand for mining equipment and to bring
production in line with demand, Caterpillar recently announced
plans to layoff of more than 400 employees or about 11% of its
work force at its Decatur, Ill., factory.
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 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 remain
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 #5 (Strong Sell). Its
Joy Global, Inc.
H&E Equipment Services Inc.
The Manitowoc Company, Inc.
) are yet to announce their first quarter results.