Caterpillar (CAT) On Growth Path, August Sales Rise 11%

Caterpillar Inc. (NYSE:CAT) reported 11% rise in sales in August, owing to improvement in all regions particularly Asia Pacific and construction sector. The company’s sales growth graph has remained in the positive territory since it entered the same in March, logging an average sales growth of 6.7% ever since. In March, it reported a rise of 1% in sales that put an end to its unprecedented 51-month long stretch of declining sales — a relief for the mining and construction equipment behemoth which has been grappling with weak mining activity since last year.

Asia Pacific Outperforms

In August, overall performance was once again led by Asia Pacific with a significant increase of 44%. The Asia Pacific region has been a consistent performer for Caterpillar since it posted the first positive reading in August 2016. The company has since then witnessed growing trend in sales in the region with growth graph steadily picking up steam. Sale improved 11% in Latin America and 8% in Europe, Africa and Middle East (EAME). Sales in North America inched up 1%.

Resource Industries Lags, Construction a Saving Grace

Overall sales at Resource Industries were up 5%, a deceleration from 8% increase in July but still a marked improvement from the declines suffered in the first half of the year. EAME was the only region to register growth in the month with a surge of 53%. Latin America and North America both reported a dip of 11% and 9% in sales, respectively. Asia Pacific also lagged this month with 8% drop in sales.

Sales in Construction Industries improved 12% year over year. Sales advanced a robust 61% in Asia Pacific and went up 24% in Latin America. The rise of 3% observed in North America helped mitigate the decline of 2% in EAME. The construction industry has now entered a more mature phase of expansion, and construction spending can be anticipated to witness moderate gains through 2017 and beyond.

Energy & Transportation Disappoints

Sales in the Energy & Transportation segment dipped 3% as 25% growth in sales to the industrial sector was inadequate to negate the decline in sales to other sectors. Sales to the Oil & Gas sector were down 11% and to the Power Generation and Transportation sectors were down 5% and 2%, respectively.

Caterpillar on Comeback Trail

Caterpillar has been grappling with the commodities rout triggered by a slowdown in China and excess supplies of most metals and energy products since last year, is finally showing signs of recovery this year. The company reported better-than-expected results in first-half 2017, which can be attributed to cost-control actions. Further, at the end of second-quarter 2017, Caterpillar’s backlog was at $14.8 billion, a year-over-year improvement of about $3 billion.

Owing to the upbeat first-half performance, improved order activity and disciplined cost control, Caterpillar hiked revenue guidance during second-quarter conference call to the range of $42-$44 billion from the prior range of $38-$41 billion. The company now projects earnings per share of $5.00 per share compared with previous guidance of $3.75 per share. The mid-point of the revenue guidance and earnings per share guidance reflect a year-over-year growth of 12% and 46%, respectively.



The company has outperformed the industry on a year-to-date basis. Shares have gained 34.6% while the industry registered an increase of 32.6%.

Asia Pacific will continue to be a catalyst, owing to increased infrastructure and residential investment in China. Further, leading indicators of U.S. construction signal robust conditions ahead that bodes well for Caterpillar. Further, its efforts to reduce costs will continue to boost margins.

Caterpillar has an expected long-term growth of 9.50%.

Caterpillar currently sports a Zacks Rank #1 (Strong Buy). Other top-ranked companies in the industrial product space include Terex Corporation (NYSE:TEX) , AGCO Corporation (NYSE:AGCO) and Komatsu Ltd. (OTC:KMTUY) . All the three stocks flaunt the same rank as Caterpillar. You can see the complete list of today’s Zacks #1 Rank stocks here.

Terex has an expected long-term growth of 19.7%.

AGCO has expected long-term growth of 13.5%.

Komatsu has expected long-term growth of 12.7%.

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Terex Corporation (TEX): Free Stock Analysis Report

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