Caterpillar Inc. (CAT Quick QuoteCAT - Free Report) seems positioned for an improved 2018 backed by its positive end markets namely construction, mining and energy as well as the benefits of substantive cost-cutting undertaken over the past few years.

 

 

Caterpillar reported year-over-year improvement in both the top and bottom line for the first time in 10 quarters in the first quarter of 2017. The company sustained the momentum in the rest of the quarters as well, aided by continued strength in the Asia Pacific region, improvement in the construction sector as well as its relentless focus on cutting costs.

 

Retail sales growth entered the positive trajectory in March following an unprecedented stretch of declines for 51 months and has shown significant improvement ever since. Caterpillar finished the year with an impressive 160% improvement in earnings in the fourth quarter of 2017 owing to improved end-user demand across all regions and most end markets.

 

Consequently, it can be said that 2017 was the comeback year for the mining and construction equipment behemoth. Its shares notched a 70% gain through the year. It remains to be seen whether the company can better or even repeat the feat in 2018.

 

 

Caterpillar reported a rise of 34% in global retail sales for the three months ended January 2018, at levels last seen in August 2011. This was driven by improvement across all regions. Sales in Asia Pacific surged 51%. The region has been a consistent contributor for the company since it posted the first positive reading in August 2016. Latin America registered growth of 49% in October and Europe, Africa and Middle East (“EAME”) sales were up 31%. North America sales also went up 23%.

 

Within Machines, Resource Industries and Construction Industries reported positive gains for the seventh and 12th consecutive months, respectively. Resource Industries segment delivered an impressive 49% growth in December sales and sales growth in the Construction Industries segment went up 30%. Sales in the Energy & Transportation segment rose 16%.

 

This upbeat numbers instill optimism for an improved performance through the rest of the year.

 

 

Strong sales momentum resulting from strong order rates, lean dealer inventories and an increasing backlog bode well for an improved 2018 performance. Given these factors, along with positive economic indicators globally and many of the company’s end markets, Caterpillar initiated adjusted EPS guidance range of $8.25-$9.25 for fiscal 2018. The mid-point of the guidance range reflects 27% year-over-year growth.

 

 

While the Construction Industries is expected to grow in 2018, anticipated seasonality of sales in China will slow down growth in the latter part of the year. Most other APAC countries are expected to grow, attributed to investments in infrastructure. In North America, continued improvement in residential and non-residential construction as well as revival in infrastructure demand will drive revenues. President Trump’s plans of big spending in infrastructure would be a catalyst as major companies like Caterpillar and Deere & Company (DE Quick QuoteDE - Free Report) are expected to gain from the big spending in infrastructure.

 

For the Energy & Transportation segment, sales into Oil and Gas applications are likely to increase in 2018, led by reciprocating engines for gas compression and well-servicing activity in North America. Sales to Transportation sector will benefit from recent acquisitions in rail services.

 

We believe this year, the Resource Industries segment is poised to be the catalyst. Global economic momentum and increasing commodity prices is restoring miners’ profitability and they are resuming capital spending. This bodes well for the segment. Rebuild and aftermarket demand should continue as fleet utilization increases. Demand for new equipment also grows with an extension of existing mines. Caterpillar along with other players in the same industry like Terex Corporation (TEX Quick QuoteTEX - Free Report) and Komatsu Ltd. (KMTUY Quick QuoteKMTUY - Free Report) will benefit from these improving trends in mining.

 

Further, the recently passed tax reform is likely to lead to higher spending for Caterpillar’s customers.

 

 

In September 2015, Caterpillar set out with significant restructuring and cost reduction initiative, with actions expected through 2018. Once fully implemented, the plan would lower annual operating costs by about $1.5 billion. This includes the consolidation or closure of more than 30 facilities and reduction of workforce by more than 16,000.

 

 

Caterpillar continues to focus on customers and on the future by continuing to invest in digital capabilities, connecting assets and jobsites along with developing the next generation of more productive and efficient products. The company is preparing factories and suppliers to meet increased demand, while remaining focused on developing a more competitive and flexible cost structure. This should enable it to respond quickly if economic fundamentals change.

 

The company is in the early stages of implementing its strategy for profitable growth. During 2018, the company will continue to make additional investments in expanded offerings and services important for long-term success. It will use Operating & Execution Model to divert resources to areas that represent the greatest opportunity for return on investments.

 

 

Last year, it generated $8 billion in global revenues. By 2020, it's predicted to blast through the roof to $47 billion. Famed investor Mark Cuban says it will produce "the world's first trillionaires," but that should still leave plenty of money for regular investors who make the right trades early.