Dealer Data From Caterpillar Suggest Earnings May Be Weak

Tuesday, 23 Jul 2013 11:55 AM

 

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Caterpillar Inc. released unaudited dealer data on Tuesday showing a slowdown in sales of its heavy equipment everywhere except North America, a possible warning sign ahead of the company's second-quarter earnings due on Wednesday.

The world's largest maker of construction and mining equipment said global dealer sales of its yellow earthmoving machines were down 8 percent year-over-year in June.

That represented a deterioration from May, when dealers reported that global equipment sales were down 7 percent from a year earlier.

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The slowdown in June was led by dealer sales in the Asia Pacific region, which tumbled 21 percent. In May, those sales were down 14 percent.

Ann Duignan, an analyst at JPMorgan Chase, said the sales data released on Tuesday, which was based on unaudited reports from dealers and contained in a filing with the U.S. Securities and Exchange Commission, "foreshadows a likely weak Q2 earnings report tomorrow."

The news from Caterpillar's dealer network was not all bad.

The Peoria, Illinois-based company said global dealer sales of its gas turbines and diesel engines and generators in June were up 1 percent year over year. In May, those sales of so-called power systems were down 1 percent.

Sales of power systems to industrial users and the transportation industry surged 15 percent in June, but power system sales to the energy industry, a higher-margin business for the company, were down 10 percent.

Last week, short-seller Jim Chanos of Kynikos Associates said he was betting against the shares of Caterpillar because the company was "tied to the wrong products at the wrong part of the cycle" — a reference to the big investment Caterpillar has made in mining equipment in recent years.

In April, Caterpillar posted disappointing quarterly results and cut its full-year 2013 profit forecast, citing a drop in demand from mining customers.

Caterpillar's current outlook for its mining business, which it may update on Wednesday, is for a 50 percent decline in sales of its traditional mining trucks and loaders this year, as well as a 15 percent decline in sales of draglines made by Bucyrus, a Milwaukee-based company it bought in 2010.

Mining equipment is Caterpillar's most profitable product category. But sales to the sector have been hurt in recent quarters because miners, facing investor backlash over unpopular takeovers, budget overruns and falling metal prices, have slashed capital spending, slowed the development on some projects and shelved others entirely.

Lawrence De Maria, an analyst at William Blair & Co., said the June numbers released Tuesday "do not point to an imminent turn in demand."

Editor's Note: Save, shop and invest like an insider! Our experts lead the way each month in The Franklin Prosperity Report. Click here to learn more.

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