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Caterpillar's (CAT) Retail Sales Decline 11% in November

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Zacks Equity Research
·5 min read
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Caterpillar Inc.’s CAT global retail sales were down 11% in the three-month period ended November 2020 — marking its 12th consecutive month of global retail sales decline. Weak manufacturing backdrop amid the prolonged U.S-China trade war and the COVID-19 pandemic has taken a toll on the company’s performance so far this year. However, on a positive note, the decline of 11% reported in November reflects an improvement from a slump of 17% in October. This signals that things might be on the mend for the mining and construction equipment behemoth.

Analyzing the November Performance

Looking at the region-wise breakup of the company’s sales, North America fared the worst during November, reporting a fall of 20%, followed by EAME that witnessed a decline of 10%. However, Latin America and Asia Pacific fared better and delivered growth of 8% and 2%, respectively. It is worth mentioning that after reporting declines for 10 consecutive months, sales in Latin America returned to growth in November. Sales growth in Asia Pacific has been in the positive territory over the past two months.

Coming to the segments, the Resource Industries segment’s sales declined 13% in November — the 13th straight month of negative growth. Nevertheless, it reflects a considerable improvement from plunge of 29% in October. Sales in North America and Asia Pacific were down 25% and 17%, respectively. Sales in EAME remained flat. Latin America was the only region to register growth of 2% — the first time this year.

Sales in the Construction Industries segment were down 9% — an improvement from slump of 13% in October. The segment’s sales have been declining for 12 straight months. Sales in North America and EAME were down 19% and 13%, respectively. Sales in Latin America were up 10% in November marking the fourth consecutive month of growth. Asia Pacific maintained its positive trend for seven straight months with 8% growth in sales in November.

Sales in the Energy & Transportation segment slumped 24%. The segment has been contracting for 14 consecutive months. Sales to Transportation, Industrial, Oil & Gas and Power Generation sectors plunged 49%, 32% and 26%, and 9% respectively.

Pickup in Industrial Activity Bodes Well for Caterpillar

Lower demand across all segments and geographies, primarily due to the impact of the COVID-19 pandemic, led to a drop of 25% in Caterpillar’s sales in the nine-month period ended Sep 30, 2020. Earnings in the period was $3.97, reflecting a year-over-year plunge of 53%. In the early part of the year, Caterpillar had to suspend operations temporarily at certain facilities due to supply chain issues, weak demand or as per government mandates to stem the spread of the coronavirus. Though currently all of the company’s primary production facilities are operational, it may have to suspend operations temporarily again if necessary.

Per the Institute for Supply Management, the U.S Manufacturing Purchasing Managers’ Index (PMI) was 57.5% in November — a  major rebound from the low PMI reading of 41.5% in April. The index has been maintaining a reading above 50 (which denotes expansion) for six straight months. This ongoing recovery will reflect on Caterpillar’s results in the days ahead.

In North America, low interest rates and improved homebuilder confidence, and growth in housing starts will support demand for Caterpillar’s construction equipment. In China, the outlook for the construction sector holds promise backed by government spending on infrastructure and building activity. Moreover, with commodity prices picking up, mining companies are likely to resume spending. A pick up in manufacturing and mining sectors will help Caterpillar to post sales recovery.

Also, in the wake of weak demand, Caterpillar has taken initiatives to reduce costs, which will help sustain margins. The company also remains focused on making continued investments in services and expanded offerings, which are crucial to its strategy for profitable growth.

Price Performance

Shares of Caterpillar have gained 20.6% year to date compared with the industry’s growth of 20.8%.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector include Silgan Holdings Inc. SLGN, Avery Dennison Corporation AVY and Ball Corporation BLL. All of these stocks carry a Zacks Rank #2 (Buy), at present. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Silgan has an estimated earnings growth rate of 38% for the ongoing year. Shares of the company have appreciated 14% year to date.

Avery Dennison has a projected earnings growth rate of 4.6% for the current year. Year to date, the company’s shares have gained 14%.

Ball Corporation has an expected earnings growth rate of 16.1% for 2020. The stock has rallied 40% so far this year.

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Caterpillar Inc. (CAT) : Free Stock Analysis Report
Silgan Holdings Inc. (SLGN) : Free Stock Analysis Report
Ball Corporation (BLL) : Free Stock Analysis Report
Avery Dennison Corporation (AVY) : Free Stock Analysis Report
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