Sales growth for construction and mining equipment behemoth Caterpillar Inc. (CAT) continued to be in the red as it dropped for the sixth-straight time. Worldwide sales declined 7% for the three months ending May 2013.
On a closer look, though sales declined, it was an improvement from the 9% decline, noted in the three months ending April with all the regions delivering muted declines compared with the previous month. So far in 2013, Caterpillar’s sales have declined 4%, 13%, 11% and 9% for three months ending Jan, Feb, March and Apr 2013, respectively.
Caterpillar sales started going downhill since 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 May, Caterpillar witnessed declines across all regions barring Latin America, registering 22% growth. Latin America’s performance had considerably improved in April (up 28%) compared with the 3% growth in both January and February and 12% rise in March. Demand for construction and infrastructure projects has spurred equipment demand in Brazil as it prepares for the 2014 World Cup and 2016 Olympic Games.
Sales in North America, the company’s largest market in terms of geography, declined 16% in May and thus showed a tad improvement from 18% dip in April - the lowest so far in 2013. In Asia, sales declined 14%, an improvement compared with the 20% drop in April, 26% in February and 24% in March. Sales have been affected in the region due to weak demand from China. Sales in EAME (Europe, Africa, Middle East) registered a drop of 2%, faring better than the 3% decline in April and 8% in Mar, but being a disappointment compared to the 1% climb in Jan. In ROW (Rest of the World), sales were down 2% compared with the 5% drop in April and 11% in March.
Reciprocating & Turbine Engine Retail sales went down 1% year over year globally, an improvement from the 7% decline in January and February, 6% in March and 5% in April. Among the end markets, sales to the transportation sector registered an 8% growth, flat compared with the preceding month, while industrial and petroleum sectors improved remarkably with 1% growth each. The industrial and petroleum sectors had dipped 7% and 8%, respectively, in April. Electric Power remained in the red with a 10% decline. However, the decline rate has improved from the 11% and 17% decline in April and March, respectively.
Caterpillar’s first quarter results were also disappointing as revenues dipped 17% year over year to $13.2 billion and earnings per share slumped 45% to $1.31, primarily due to reduced mining demand and decline in inventory. Citing weak demand for its mining equipment, Caterpillar has trimmed its sales outlook to a range of $57 to $61 billion from the previous range of $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 will benefit from the recovery in the U.S. construction sector, expected benefits from the resolution of its issues related to ERA buy, inventory adjustments nearing completion and resumption of stock repurchases. However, trimmed guidance, decline in sales growth, declining backlog and negative impact of the European debt crisis remain concerns.
Caterpillar currently retains a Zacks Rank #4 (Sell). Other stocks in the industrial products sector with a favorable Zacks Rank are Kubota Corporation (KUB) with a Zacks Rank #1 (Strong Buy) while H&E Equipment Services Inc. (HEES), Alamo Group, Inc. (ALG) carry a Zacks Rank #2 (Buy).
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