Caterpillar January Sales up 34%: Will the Momentum Sustain?

Caterpillar Inc. CAT reported a rise of 34% in global retail sales for the three months ended January 2018, at par with the performance witnessed in December 2017 and at levels last seen in August 2011. This was driven by improvement across all regions. Within Machines, Resource Industries and Construction Industries reported positive gains for the seventh and 12th consecutive months, respectively.

 

Caterpillar Continues its Stellar Performance

 

In January, Caterpillar’s performance was driven by a 51% increase in Asia Pacific sales. 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%.

 

Resource Industries segment delivered an impressive 49% growth in December sales. This was led by a surge of 99% in Latin America sales and 66% jump in EAME. North America and Asia Pacific reported growth of 38% and 24%, respectively.

 

Sales growth in the Construction Industries segment went up 30%. Sales advanced a robust 59% in Asia Pacific and 28% in Latin America. North America and EAME sales rose 22% and 19%, respectively.

 

Sales in the Energy & Transportation segment rose 16%. Growth was led by sales to the Oil & Gas sector, which reported a 27% rise. Sales to the Transportation sector remained flat. In the Industrial sector, sales improved 13%. Sales to the Power Generation sector advanced 8%.

 

Caterpillar, Inc. Price
 

Caterpillar, Inc. Price

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A Turnaround Performance in 2017

Caterpillar, which had been affected by a weak mining industry in the past few years, delivered a turnaround performance in 2017.  In March 2017, the company witnessed a 1% rise in machine retail sales, which put an end to its unprecedented 51-month long stretch of declining sales. Retail sales averaged 10.3% in 2017.

 

Caterpillar delivered an upbeat fourth quarter, with adjusted earnings per share soaring 160% in the fourth quarter, while revenues improved 35%, thanks to higher sales volume owing to improved end-user demand across all regions and most end markets. This marked the company’s fourth consecutive quarter of both top and bottom-line growth, after a string of dismal performances for four years. Also at fiscal 2017 end, Caterpillar’s backlog was at $15.8 billion, up from $15.4 billion at 3Q17 end, mainly driven by higher backlog in Resource Industries.

 

 

Consequently, Caterpillar has gained 57% on a year-to-date basis, outperforming the industry’s rally of 54.7%.

 

Caterpillar’s performance instils optimism in the broader machinery sector as the company has been dominating the global manufacturing industry for long, owing to its size and scope of operations.

 

Will Caterpillar Be Able to Sustain the Momentum?

 

The Construction segment will benefit from continued improvement in North American residential, non-residential and infrastructure markets. Rising commodity prices will drive Resource Industries and Energy & Transportation’s revenues. Ongoing cost cutting efforts and additional investments in expanded offerings and services will drive growth. Operating & Execution Model will divert resources to areas that represent the greatest opportunity for return on investments.

 

Caterpillar currently carries a Zacks Rank #2 (Buy).

 

Other Stocks to Consider

 

Some other top-ranked stocks in the same sector include H&E Equipment Services, Inc. HEES, Astec Industries, Inc. ASTE and Komatsu Ltd. KMTUY. While H&E Equipment Services sports a Zacks Rank #1 (Strong Buy), Astec and Komatsu carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

 

H&E Equipment Services has a long-term earnings growth rate of 18.6%. Its shares have soared 70.5%, over the past six months.

 

Astec has a long-term earnings growth rate of 10%. The company’s shares have rallied 25% in last six months.

 

Komatsu has a long-term earnings growth rate of 27%. The stock has gained 39% in six months’ time.

 

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