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Caterpillar's August Sales Up 23%, Clocks Average YTD of 28%

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Caterpillar Inc. (CAT - Free Report) reported a rise of 23% in global retail sales for the three months ended August 2018. The company also reported a deceleration from the 24% rise witnessed in July. Notwithstanding this recent dip, Caterpillar reported average sales growth of 28% in the first eight months of 2018, a remarkable improvement from an average of 4% in the year-ago period. Further, Resource Industries, Construction Industries and Energy & Transportation continued to report positive gains for the 14th, 19th and 12th consecutive months, respectively.
 
In August, Caterpillar’s performance was led by a rise of 29% in sales in North America followed by growth of 28% noted in Asia Pacific. Latin America sales were up 18% while Europe, Africa and Middle East (“EAME”) sales improved 9%. Compared with July, sales growth decelerated across all regions, except North and Latin America.
 
Resource Industries, Construction Disappoint
 
Resource Industries segment reported growth of 35% in August, which improved from 34% in July but marked a deceleration from the year-to-date peak of 60% witnessed in March. Sales in Asia Pacific surged 77%. Sales Latin America and North America rose 43% and 30%, respectively. Sales in EAME were up 13%. Notably, Asia Pacific and Latin America were the only regions to register improvement from July.
 
Sales growth in the Construction Industries segment went up 21%, compared with the rise of 22% noted in July. Sales advanced 30% in North America and 19% in Asia Pacific. Sales in both Latin America and EAME sales rose 8%. Sales growth dipped in Asia Pacific and Latin America compared with July but improved in North America and EAME.
 
Sales in the Energy & Transportation segment rose 16%, improving from growth of 11% witnessed in July. The Oil & Gas sector and Power Generation sector reported sales growth of 36% and 10%, respectively. The Transportation sector’s sales also rose 10%. However, the Industrial sector’s sales declined 10%.
 
Should the Recent Slowdown Raise a Flag?
 
The company’s overall retail sales growth graph has remained in the positive territory since March 2017, closing the year with an average of 10.3% in 2017. In the first eight months of 2018, Caterpillar reported average sales growth of 28%.
 
In the last reported quarter, Caterpillar delivered adjusted earnings per share of $2.97, soaring 99% from the prior-year quarter owing to continued strength in many of its end markets as well as incessant focus on cost control. Revenues improved 24% year over year to $14.0 billion in the last reported quarter. The quarterly performance marked the company’s sixth consecutive quarter of both top and bottom-line growth after a string of dismal performances for four years.
 
Caterpillar now anticipates adjusted earnings per share between $11.00 and $12.00 for fiscal 2018. The Zacks Consensus Estimate for fiscal 2018 is at $11.65, projected year-over-year growth of 69%. For fiscal 2019, the estimate is pegged at $12.93, reflecting growth of 11%.
 
 
Caterpillar has gained 17% over the past year, in-line with the industry. The recently imposed tariffs that have led to raw material inflation, supply chain challenges continue to pressure freight costs and the recent slowdown in retail sales seems to be weighing the stock down. However, the company plans to mitigate these impacts through mid-year price increases, utilizing the Operating & Execution Model to drive operational excellence and structural cost discipline.
 
The dip in sales growth witnessed in August is a transitory phase as the company is likely to benefit from strong order rates, lean dealer inventories and an increasing backlog through the balance of 2018. The Construction segment will gain from infrastructure development in China as well as continued demand improvement in North American residential, non-residential and infrastructure markets. Rising commodity prices will drive Resource Industries and Energy & Transportation’s revenues. Further, cost cutting efforts and additional investments in expanded offerings and services will drive growth.
 
Caterpillar currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
 
Other Stocks to Consider
 
Some other top-ranked stocks in the same sector include W.W. Grainger, Inc. GWW, Atkore International Group Inc. ATKR and Flowserve Corporation FLS. While Grainger and Atkore sport a Zacks Rank #1, Flowserve carries a Zacks Rank #2. 
 
Grainger has a long-term earnings growth rate of 12.5%. Its shares have appreciated 108% over the past year.
 
Atkore has a long-term earnings growth rate of 10%. The company’s shares have gained 43% in the past year.
 
Flowserve has a long-term earnings growth rate of 17%. The company’s shares have gained 34% in the past year.
 
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