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Cat Sees Big Sales Rise in May

This is a positive development for Caterpillar, which had been going through a rough patch with sales declining for an unprecedented 51-month long stretch.

Thu June 22, 2017 - National Edition
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Cat reported 8 percent rise in sales in May.
Cat reported 8 percent rise in sales in May.

Caterpillar Inc. (CAT) reported 8 percent rise in sales in May, a pick up from 1 percent growth witnessed in April and March thanks to continuing improvement in Asia Pacific, particularly in Resource Industries. This is a positive development for the ailing mining and construction equipment behemoth, which had been going through a rough patch with sales declining for an unprecedented 51-month long stretch that ended in March this year.

As per the company's recent May 2017 sales report, overall performance was led by Asia Pacific which witnessed 49 percent rise in sales. Sale edged up 2 percent in North America. Sales slumped 15 percent in Latin America, while Europe, Africa and Middle East (EAME) witnessed a 6 percent dip.

The Asia Pacific region has been a consistent performer for Caterpillar since it posted the first positive reading in Aug. 2016. The company has since then witnessed a growing trend in sales in the region with the growth graph steadily picking up steam from single digits to the 49 percent growth witnessed in May. It is also worth mentioning that after four successive months of declines, North America has delivered positive growth in May. Though in Latin America, growth still remains in the negative territory and is muted compared with the prior months this year.

Overall sales at Resource Industries were down 3 percent, nevertheless an improvement from the 19 percent decline suffered in March and April. Latin American sales witnessed the maximum decline of 50 percent, followed by a 3 percent drop in North America. EAME sales were flat. Asia Pacific was the only region to put up a positive growth of 34 percent, a massive turnaround from the 6 percent drop in April.

Sales in Construction Industries improved 11 percent year over year, depicting an upward trend since Feb. 2017. Sales surged 52 percent in Asia Pacific and went up 9 percent in Latin America. The rise of 4 percent observed in North America helped offset the 7 percent decline in EAME. The construction industry has now entered a more mature phase of expansion, and construction spending can be anticipated to see moderate gains through 2017 and beyond.

Sales in the Energy & Transportation segment rose 4 percent, an improvement from the 2 percent dip in April. Sales to the Oil and Gas sector, Transportation sector and Industrial sector posted a rise of 13 percent, 9 percent and 4 percent, respectively. This helped offset a 10 percent decline in sales to the Power Generation Sector.

Caterpillar which has so far been grappling with the commodities rout triggered by a slowdown in China and excess supplies of most metals and energy products, is finally showing signs of turnaround this year. This was made possible by its relentless cost saving actions along with improvement in construction and Asia Pacific. In the first quarter of 2017, the company delivered year-over-year improvement in both the top line and bottom line for the first time in 10 quarters. Backlog improved on a year-over-year basis for the first time since the third quarter of 2014.

The company has outperformed the Zacks categorized Machinery - Construction/ Mining subindustry on a year-to-date basis. Shares have gained 17.3 percent while the industry registered an increase of 16.5 percent.

Quoting activity remains promising in many of Caterpillar's markets and retail sales are turning positive for both machines and Energy & Transportation for the first time in several years. The company estimates revenues around $38 to $41 billion for 2017, depicting a 2 percent rise from the revenues reported in fiscal 2016. It now anticipates earnings per share (excluding restructuring costs) of $3.75, reflecting a 10 percent improvement over 2016 earnings.

The Zacks Consensus Estimate for fiscal 2017 for revenues and earnings are $40.21 billion and $4.13, respectively. Notably, both the figures are higher than the company's respective guidance. Estimates for Caterpillar have moved up in the past 60 days, reflecting the optimistic outlook of analysts. The earnings estimate for fiscal 2017 has gone up 28 percent while that of fiscal 2018 has moved up 18 percent.

Caterpillar recently announced that its board of directors have approved 1.3 percent increase in quarterly dividend to 78 cents per share after a hiatus of two years. The move reflects balance sheet strength and improved cost structure which has once again enabled the company to deliver incremental returns to shareholders. Going forward, Caterpillar is expected to benefit from President Trump's plans of big spending in infrastructure as it is anticipated to play a major role in the national infrastructure plan.


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