Caterpillar's April Sales Down 9%

Zacks Equity Research
May 22, 2013

Sales worries continue for Caterpillar Inc. (CAT) as worldwide sales of the construction and mining equipment behemoth declined 9% for the three months ending Apr 2013. This marked the fifth consecutive month of declining sales following disappointing first quarter 2012 results.

Caterpillar sales started their 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.

So far in 2013, Caterpillar’s sales have declined 4% in Jan, 13% in Feb and 11% in March. In Apr 2013, Caterpillar witnessed declines across all regions barring Latin America, which held its own with 28% growth. Latin America has shown a considerable improvement in April compared to the 3% growth in both Jan and Feb 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.

In North America, the company's largest market in terms of geography, the sales decline of 18% in Apr was the lowest so far in 2013. In Asia, sales declined 20%, in tandem with the decline of 26% in Feb and 24% in March pulled down by weak demand from China. Sales in EAME registered a drop of 3% from the high single digit decline in the preceding two months, but still disappointing compared to the 1% climb in Jan. In ROW (Rest of the World) sales dipped 5%.

Reciprocating & Turbine Engine Retail sales went down 5% year over year globally, an improvement from the 7% decline in Jan and Feb and 6% in March. Among the end markets, sales to the transportation sector were the only bright spot with 8% growth. Other markets remained in the red with the sales to the power sector being the worst affected with a 11% decline followed by industrial and petroleum sector dipping 7% and 6%, 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.

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 slowdown in economic growth in China remain concerns. Caterpillar currently retains a Zacks Rank #4 (Sell). Other stocks in the industrial products sector with a favorable Zacks Rank are H&E Equipment Services Inc. (HEES), Alamo Group, Inc. (ALG) and CNH Global NV (CNH), all carrying Zacks Rank #2 (Buy).

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