Shares of Caterpillar, Inc. CAT dipped 1.52% as the world's largest maker of construction and mining equipment reported an 11% fall in its global retail sales for the three months ending Feb 2015, with decline noted across all regions. Following a 14% dip in January, this paints a gloomy picture for the first quarter sales performance.
Caterpillar’s sales graph has been going through a rough patch since Dec 2012. With February marking the 27th consecutive month of declining sales, the situation becomes even poorer than the previous 20-month stretch of negative sales reported from Sep 2008 to Apr 2010 due to the global recession. Rising inventories of unsold equipment, weak economic conditions and slow down of the Chinese economy, along with soft mining demand have led to the dismal performance.
In February, overall sales performance was dragged down by a 32% slump in Latin America while Asia Pacific in tow with a 13% dip. EAME declined 8% and North America was also down by 2%. The recent dip in North America is in stark contrast to the consistent positive growth delivered by the region in 2014.
Overall sales in Resource Industries were down 12%. This does not come as a surprise since sales in Resource Industries will remain soft as mining companies have slashed spending in the face of lower commodity prices. EAME fared the worst with a 42% slump, followed by Latin America with a decline of 16%. Sales in North America dipped 7%. Asia/Pacific was the only saving grace with a 37% rise.
Sales in Construction Industries were down 11% year over year. After delivering positive growth during most of 2014, the segment’s sales growth slipped into the negative territory since August last year. Sales in EAME were up 5%, offset by declines in Latin America (40%), Asia/Pacific (29%) and North America (1%).
Sales in the Energy & Transportation segment moved north 17%. A 39% surge in the Transportation sector, 19% increase in Power Generation sector and 18% rise in the Oil & Gas sector were partially offset by a 16% decline in the Industrial segment sales.
Caterpillar’s fourth-quarter revenues declined 1% year over year to $14.2 billion mainly due to currency impacts from weakening of the euro and Japanese yen. Sales in Machinery, Energy & Transportation declined 1% and Financial Products sales dipped 2%.
At the end of the fourth quarter, Caterpillar’s backlog was $17.3 billion, down from $19.7 billion at the end of the third quarter. The decrease was primarily in Energy & Transportation followed by the Resource Industries and Construction Industries. Backlog is further expected to decline in the Energy & Transportation segment during the first half of 2015.
Caterpillar now anticipates 2015 revenue to be approximately $50 billion (down 4% year over year) from the prior expectation of flat to slightly up. The primary reason behind this is lower oil prices, which will negatively impact both engine sales for oil production, as well as reduced demand for construction machines used for energy site preparations.
Decline in mined commodity prices, which have a direct impact on Resource Industries, lowered expectations for demand of construction equipment in China as well as a stronger dollar also led to the lowered guidance. With continued weakness in agriculture, the company also expecs lower sales of industrial engines, while the rail business is also projected to be down in 2015 after a great 2014.
Caterpillar currently carries a Zacks Rank #5 (Strong Sell). Socks to consider in the same industry include AO Smith Corp. AOS, Astec Industries, Inc. ASTE and Briggs & Stratton Corp. BGG. All these stocks carry a Zacks Rank #2 (Buy).
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