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Caterpillar November Sales Up 16%, Lowest So Far This Year

Caterpillar Inc. CAT reported 16% rise in global retail sales for the three months ended November 2018, a deceleration from improvement of 18% witnessed in October. The company has registered the lowest sales growth rate so far this year.

 

Notwithstanding this recent decline, Caterpillar reported average sales growth of around 25% in the first eleven months of 2018, marking a significant improvement from average of 8% in the comparable year-ago period. Further, Resource Industries, Construction Industries, and Energy & Transportation continued to report positive gains for the 17th, 22nd and 15th consecutive months, respectively.

 

In November, Caterpillar’s performance was led by 20% rise in sales in North America, followed by growth of 15% and 14% in the Asia Pacific and Latin America, respectively. Europe, Africa and Middle East (“EAME”) sales improved 11%. Compared with October, sales growth decelerated across all regions, except for EAME.

 

Construction Segment Disappoints

 

Resource Industries segment reported growth of 47% in November, a tad higher than the rise of 46% in September. But, it has marked a deceleration from the year-to-date peak of 60% attained in March. Sales in the Asia Pacific and North America surged 81% and 66%, respectively. Sales in Latin America rose 49% while EAME surged 12%. Notably, North America and EAME were the only regions to register improvement from October.

 

Sales growth in the Construction Industries segment went up 9%, down from growth of 12% noted in October. The segment has also marked lowest sales growth so far in 2018. Sales increased 13% in North America, 10% in EAME and 5% in the Asia Pacific. Sales growth deteriorated in the Asia Pacific and North America from October. Sales in Latin America dipped 3%.

 

Sales in the Energy & Transportation segment rose 13%, up from 7% growth registered in October. The Power Generation, and Oil & Gas sectors reported sales growth of 21% and 20%, respectively. Sales in the Transportation sector and the Industrial sector declined 9% and 6%, respectively.

 

Is This Slowdown Worth Worrying About? 

 

The company’s overall retail sales growth graph has remained in the positive territory since March 2017, closing the fiscal year with average of 10.3% in 2017. In the first eleven months of 2018, Caterpillar reported average sales growth of 25%.

 

In third-quarter 2018, Caterpillar delivered adjusted earnings per share of $2.86, surging 47% year over year. This can be attributed to continued strength in many of its end markets and incessant focus on cost control. Revenues improved 18% year over year to $13.5 billion in the third quarter. The quarterly performance marked the company’s seventh consecutive quarter of top and bottom-line growth after recording dismal performances for four years.

 

Backed by robust performance so far in 2018, healthy order rates, backlog and improving end-markets, Caterpillar maintained adjusted earnings per share guidance at $11.00-$12.00 for fiscal 2018. The company anticipates price realization, operational excellence and cost discipline to help mitigate the impact of higher material and freight costs, including tariffs.

 

The Zacks Consensus Estimate for earnings in fiscal 2018 is pegged at $11.64, projecting year-over-year growth of 69%. For fiscal 2019, estimates are pegged at $12.76, reflecting growth of 10%.

 

 

Caterpillar has decreased 13.9% over the past year, faring better than the industry’s 15.7% decline. The recent slowdown in retail sales seems to be weighing the stock down. Further, the recently imposed tariffs led to raw material cost inflation. Further, supply chain challenges continue to pressure freight costs. However, the company plans to negate these impacts through price increases, utilizing the Operating & Execution Model to drive operational excellence, and structural cost discipline. 

 

The recent dip in sales growth is likely to be transitory in nature as the company is anticipated to benefit from strong order rates and an increasing backlog through the rest of 2018. The Construction segment will gain from infrastructure development in China, and continued demand in North American residential, non-residential and infrastructure markets. Rising commodity prices will drive revenues of Resource Industries and Energy & Transportation. Further, cost-cutting efforts, and additional investments in expanded offerings and services will drive growth.

 

Caterpillar currently carries a Zacks Rank #3 (Hold).

 

Stocks to Consider

 

Some better-ranked stocks in the same sector include Enersys ENS, CECO Environmental Corp. CECE and Northwest Pipe Company NWPX, all carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

Enersys has a long-term earnings growth rate of 10%. Shares of the company rallied 17% in a year’s time.

 

CECO has a long-term earnings growth rate of 15%. The stock has surged 55% over the past year.

 

Northwest Pipe has a long-term earnings growth rate of 10%. The stock has gained 28% over the past year.

 

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