Caterpillar's (CAT) Monthly Sales Growth Peaks 12% In July

Caterpillar Inc. (NYSE:CAT) reported 12% rise in sales in July, its best performance so far in 2017 thanks to continuing improvement in Asia Pacific and a turnaround performance in Resource Industries. In March, the company reported a recovery in sales with a 1% rise that put an end to its dismal 51-month long stretch of declining sales. Since then, growth has remained in the positive territory.

The company witnessed improvement in all regions in July, the first time this year. Overall performance continued to be led by Asia Pacific with a 45% rise. The Asia Pacific region has been a consistent performer for Caterpillar since it posted the first positive reading in August 2016. The company has since then witnessed a growing trend in sales in the region with growth graph steadily picking up steam. Sale improved 10% in Latin America and 4% in North America. Sales went up 5% in Europe, Africa and Middle East (EAME) after suffering declines in the first six months.

Overall sales at Resource Industries were up 8%, a marked improvement from the declines suffered in the first half of the year. EAME sales surged 33% and Asia Pacific sales improved 13%. However, Latin America and North America both reported a 4% dip in sales.

Sales in Construction Industries improved 13% year over year, the best reading so far this year. Sales advanced 54% in Asia Pacific and went up 19% in Latin America. The rise of 6% observed in North America helped mitigated the 1% decline in EAME. The construction industry has now entered a more mature phase of expansion, and construction spending can be anticipated to witness moderate gains through 2017 and beyond.

Sales in the Energy & Transportation segment dipped 2% as the 23% growth in sales to the industrial sector was inadequate to mitigate the decline in sales to other sectors. Sales to the Power Generation Sector were down 12%, and to the Transportation and Oil & Gas sectors were down a respective 8% and 2%.

Caterpillar which been grappling with the commodities rout triggered by a slowdown in China and excess supplies of most metals and energy products, is finally showing signs of recovery this year. The company delivered an upbeat second quarter with adjusted earnings per share improving 37% in the second quarter while revenues improved 9.6%. This follows a stellar first quarter wherein Caterpillar reported year-over-year improvement in both top and bottom lines for the first time in 10 quarters. The better-than-expected results in first-half 2017 can be attributed to cost-control actions.

Also, at the end of second-quarter 2017, Caterpillar’s backlog was at $14.8 billion, a year-over-year of about $3 billion. Owing to the upbeat first-half performance, improved order activity and disciplined cost control, Caterpillar hiked revenue guidance during second-quarter conference call to the range of $42-$44 billion from the prior range of $38-$41 billion. The company now projects earnings per share of $5.00 per share compared with previous guidance of $3.75 per share. The mid-point of the revenue guidance and earnings per share guidance reflect a year-over-year growth of 12% and 46% respectively.



The company has outperformed the industry on a year-to-date basis. Shares have gained 36.3% while the industry registered an increase of 35.4%.

Asia Pacific will continue to be a catalyst in both Resource Industries as well as construction, owing to increased infrastructure and residential investment in China. Further, leading indicators of U.S. construction signal robust conditions ahead that bodes well for Caterpillar. Further, its efforts to reduce costs will help boost margins.

Caterpillar has an expected long-term growth of 9.50%.

Caterpillar currently sports a Zacks Rank #1 (Strong Buy). Other top-ranked companies in the industrial product space include Terex Corporation (NYSE:TEX) , AGCO Corporation (NYSE:AGCO) and Owens-Illinois Inc. (NYSE:OI) . All the three stocks flaunt the same rank as Caterpillar. You can see the complete list of today’s Zacks #1 Rank stocks here.

Terex has an expected long-term growth of 19.67%.

AGCO has expected long-term growth of 13.51%.

Owens-Illinois has an expected long-term growth of 9.65%.

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