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Caterpillar's July Sales Up 24%, Clocks Average YTD of 28%
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Caterpillar Inc. (CAT - Free Report) reported a rise of 24% in global retail sales for the three months ended July 2018, a deceleration from the 25% rise witnessed in June and average sales growth of 28% noted in the past six months of this year. This deceleration can primarily be attributed to slowdown in Resource Industries, Construction and Energy & Transportation compared with the prior months. Nevertheless, Resource Industries, Construction Industries and Energy & Transportation continued to report positive gains for the 13th, 18th and 11th consecutive months, respectively.
In July, Caterpillar’s performance was led by a rise of 30% in sales in Asia Pacific followed by growth of 27% noted in North America. Latin America sales were up 16% while Europe, Africa and Middle East (“EAME”) sales improved 13%. Compared with June, sales growth decelerated across all regions, except North America.
Resource Industries, Construction, Energy & Transportation Disappoint
Resource Industries segment reported growth of 34% in July, in line with June but marked a deceleration from the year-to-date peak of 60% witnessed in March. Sales in EAME surged 43% and in North America, rose 34%. Sales in Asia Pacific and Latin America increased 29% and 43%, respectively. Notably, sales growth in North America was in line but dipped in both EAME and Latin America, compared with June levels. Asia Pacific was the only region to register improvement from June, wherein sales had inched up 1% but still remains below the high of 60% attained in February this year.
Sales growth in the Construction Industries segment went up 22%, compared with the rise of 24% noted in June. Sales advanced 30% in Asia Pacific and 26% in North America. Latin America and EAME sales rose 15% and 5%, respectively. Sales growth dipped in all regions compared with June, barring North America.
Sales in the Energy & Transportation segment rose 11%, declining from growth of 14% witnessed in June. The Oil & Gas sector and Power Generation sector reported sales growth of 24% and 12%, respectively. This was offset by the Industrial and Transportation sector’s sales decline of 8% and 4%, respectively.
The company’s overall retail sales growth graph has remained in the positive territory since March 2017, closing the year with an average of 10.3% in 2017. In the first seven months of 2018, Caterpillar reported average sales growth of 28%, an improvement from the 3% average in the comparable period last year.
In the last reported quarter, Caterpillar delivered adjusted earnings per share of $2.97 in second-quarter 2018, soaring 99% from the prior-year quarter owing to continued strength in many of its end markets as well as incessant focus on cost control. Revenues improved 24% year over year to $14.0 billion in the quarter. The quarterly performance marked the company’s sixth consecutive quarter of both top and bottom-line growth after a string of dismal performances for four years. Caterpillar now expects adjusted earnings per share between $11.00 and $12.00 for fiscal 2018. The Zacks Consensus Estimate for fiscal 2018 is at $11.54, projected year-over-year growth of 68%. For fiscal 2019, the estimate is pegged at $12.87, reflecting growth of 11.5%.
Caterpillar has gained 19% over the past year, underperforming the industry’s rally of 20%. The recently imposed tariffs that have led to raw material inflation, supply chain challenges continue to pressure freight costs and the recent slowdown in retail sales seems to be weighing the stock down. However, the company plans to mitigate these impacts through mid-year price increases and utilizing the Operating & Execution Model to drive operational excellence and structural cost discipline.
The dip in sales growth witnessed in July is a transitory phase in all probability as the company is likely to benefit from strong order rates, lean dealer inventories and an increasing backlog through the balance of 2018. The Construction segment will gain from infrastructure development in China and continued demand improvement in North American residential, non-residential and infrastructure markets. Rising commodity prices will drive Resource Industries and Energy & Transportation’s revenues. Further, cost cutting efforts and additional investments in expanded offerings and services will drive growth.
Some other top-ranked stocks in the sector include Atkore International Group Inc. (ATKR - Free Report) , Actuant Corporation and W.W. Grainger, Inc. (GWW - Free Report) . All of these stocks carry a Zacks Rank #1.
Atkore International has expected long-term growth rate of 10%. Its shares have surged 51% in a year’s time.
Actuant Corporation has expected long-term growth rate of 16%. Its shares have appreciated 22% over the past year.
Grainger has expected long-term growth rate of 12%. Its shares have appreciated 114% over the past year.
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Caterpillar's July Sales Up 24%, Clocks Average YTD of 28%
Caterpillar Inc. price | Caterpillar Inc. Quote
Is the Recent Slowdown Worth Worrying About?
The company’s overall retail sales growth graph has remained in the positive territory since March 2017, closing the year with an average of 10.3% in 2017. In the first seven months of 2018, Caterpillar reported average sales growth of 28%, an improvement from the 3% average in the comparable period last year.
In the last reported quarter, Caterpillar delivered adjusted earnings per share of $2.97 in second-quarter 2018, soaring 99% from the prior-year quarter owing to continued strength in many of its end markets as well as incessant focus on cost control. Revenues improved 24% year over year to $14.0 billion in the quarter. The quarterly performance marked the company’s sixth consecutive quarter of both top and bottom-line growth after a string of dismal performances for four years. Caterpillar now expects adjusted earnings per share between $11.00 and $12.00 for fiscal 2018. The Zacks Consensus Estimate for fiscal 2018 is at $11.54, projected year-over-year growth of 68%. For fiscal 2019, the estimate is pegged at $12.87, reflecting growth of 11.5%.
Caterpillar has gained 19% over the past year, underperforming the industry’s rally of 20%. The recently imposed tariffs that have led to raw material inflation, supply chain challenges continue to pressure freight costs and the recent slowdown in retail sales seems to be weighing the stock down. However, the company plans to mitigate these impacts through mid-year price increases and utilizing the Operating & Execution Model to drive operational excellence and structural cost discipline.