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Caterpillar's 47-Month Low Continues, October Sales Dip 12%

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Caterpillar, Inc.’s (CAT - Free Report) global retail sales for the three-month period ending Oct 2016 plunged 12%. Despite remaining in the negative territory, the decline rate has somewhat improved from the 18% dip in September, 17% in August and 19% in July. So far this year, Caterpillar’s monthly sales have posted an average decline of 15%. Caterpillar's sales growth has been in the red for an unprecedented stretch of 47 consecutive months.

This current phase is much longer than the 19-month long stretch spanning from Oct 2008 to Apr 2010 wherein the company had suffered the same fate due to recession. A prolonged global slowdown in the mining sector continues to weigh on the world’s largest manufacturer of mining and construction equipment.

As per the company’s Oct 2016 sales report, overall performance was dragged down by a 24% slump in Latin America. Sales fell 16% in North America and 14% in the Europe, Africa and Middle East (EAME). The Asia Pacific region was the only bright spot, which saw a 12% rise in sales, a far better performance than the rise in lower-single digits in the past two months.

Overall sales at Resource Industries, which continues to bear the brunt of weak mining spending due to lower commodity prices, were down 24%. EAME sales witnessed the maximum decline of 34%, followed by a 31% drop in North America and 20% drop in Latin America. Again, the Asia Pacific region was the exception, recording an 8% increase.

Sales in Construction Industries decreased 8% year over year, primarily hit by the slump in Latin America (26%). Sales in North America and EAME were down 12% and 7%, respectively. On the contrary, the Asia-Pacific regions recorded an increase of 13%.

Sales in the Energy & Transportation segment fell 28% mainly due to a 33% plunge in the Power Generation sector. Sales in the Transportation sector declined 32% followed by the 29% decrease in the Industrial sector. Further, the Oil & Gas sector declined 21%.

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Caterpillar’s results continue to reflect low-end user demand across many of the company’s businesses due to economic weakness throughout the world. Its third-quarter 2016 adjusted earnings of 85 cents per share have dropped 19% from the prior-year quarter. Revenues plunged 16% year over year to $9.16 billion in the quarter due to lower sales volume resulting from consistent weak commodity prices globally and economic weakness in developing countries. Sales declined for both new equipment and after-market parts, with major decline noted in the former.

In construction, Asia Pacific is showing promise of late and leading indicators of U.S. non-residential construction signal robust conditions ahead for the domestic construction industry. To combat the effect of weak mining on its top line, Caterpillar tenaciously continues to cut down costs and reduce capacity. This along with other restructuring actions, and share repurchases will aid the mining behemoth to stay afloat despite weak demand.

Caterpillar currently carries a Zacks Rank #3 (Hold). Better-ranked stocks in the sector include ACCO Brands Corporation (ACCO - Free Report) , EnerSys (ENS - Free Report) and John Bean Technologies Corporation (JBT - Free Report) . ACCO Brands Corporation witnessed a 4% increase in earnings estimates in the last 30 days. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

EnerSys also sports a Zacks Rank #1 and its earnings estimates have also gone up 4% in the last 30 days. John Bean Technologies, another Zacks Rank #1 stock, has seen earnings estimates move north by 2%.

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