Back to top

Analyst Blog

Caterpillar Inc. (CAT - Analyst Report), the world's largest manufacturer of construction and mining equipment, has implemented a price increase of up to 3% on most of its machines across the world, citing current industry factors and general economic conditions as the reasons. This price increase will be effective January 2013 and includes adjustments to list prices and merchandising support.

The price increase will vary geographically as well as by the type of equipment. In addition, the company intends to increase prices by up to 7% on select models for applicable regions to cover the cost of incremental pollution-reduction components to comply with stricter federal standards. 
 
Earlier in October 2011, the company had announced price increase of up to 2% worldwide, effective January 2012. The company had also implemented an emissions-related price increase of 2% to 6% for applicable products and regions
 
In a separate development, the company recently trimmed its guidance for fiscal 2015, due to modest and insipid economic growth expectations through 2015 and a less likely scenario of a worldwide recession. Caterpillar expects to generate revenues in the range of $80 to $100 billion in 2015 and earnings per share in the range of $12 to $18 per share. Caterpillar had earlier estimated earnings between $15 and $20 per share. 
 
For 2012, the company remains firm on its guided record sales of $68 billion to $70 billion and EPS forecast at $9.60. Caterpillar will discuss its 2013 expectations when it releases its quarterly earnings next month. The year 2013 is expected to be similar to 2012 with respect to worldwide economic growth, and better growth expected in 2014.
 
The company remains hopeful that construction activity in the emerging markets will witness modest improvement. The company plans to remain focused on its cost control measures and continue to invest in research and development. However, Caterpillar has opted to be cautious toward acquisitions and investments in expansion.
 
The company’s plans to expand in the mining and China is currently under pressure as mining companies are revisiting and trimming their capital expenditures plans following the slowdown in economic expansion in China, the world’s largest user of coal and metals. Prices for coal and iron ore have dropped more than 20% this year, due to slowing growth in China and European debt problems.
 
All said, we maintain our Neutral recommendation on Caterpillar. The recent loss of sales momentum, margin headwinds, negative impact of the European debt crisis and a slowing Chinese economy remain concerns. The quantitative Zacks #3 Rank (short term Hold rating) for the company indicates no clear directional pressure on the stock over the near term.
 
Peoria, Illinois-based Caterpillar Inc. is the manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company is one of the few leading U.S. companies in an industry that competes globally from a principally domestic manufacturing base.
 
Caterpillar operates two divisions – Machinery and Power Systems (M&PS) and Financial Products. Caterpillar competes with the likes of CNH Global NV , Komatsu Ltd. (KMTUY) and Volvo AB (VOLVY).

Please login to Zacks.com or register to post a comment.