Shares of Caterpillar Inc. (CAT) advanced after the world’s largest maker of construction and mining equipment reported better-than-expected sales in May 2010 that reversed a long trend of global decline since September 2008.
The company recorded an 11% year-over-year jump in global sales for the three months rolling period ended May 2010. Higher sales were helped by strong performances in the Asian and North American regions, which offset weak European sales.
According to Caterpillar’s latest release, Asia-Pacific sales were up 38% and North American sales rose 15%. Areas of weakness were Europe, Africa and the Middle East (EAME), with a decline of 8%, while Latin American markets dipped 2%.
Sales were driven by recovering North American and Asia-Pacific economies, as well as improving demand from mining companies. Asia Pacific’s 38% growth in May 2010 was a stark contrast to the 30% decline in the year-ago period and a substantial improvement over 13% in April 2010 and 11% in March 2010.
The 15% growth noted in North America in May 2010 comes after a long wait. The company had last reported year-over-year growth of 7% in the region in August 2006.
Despite concerns regarding the sovereign debt crisis, sales declines in the EAME region showed signs of easing. The region’s sales slumped 8% in May, an improvement from drops of 14% and 18% in April and March, respectively. Even though Latin American markets posted a 2% decline, it was a marked improvement over the double-digit declines Caterpillar witnessed in those markets in the past year.
Going by sector-wise business performance, Caterpillar saw reciprocating and turbine engines sales in the industrial segment jump 17%. Sales to the marine and petroleum sector dropped 27% and 20%, respectively.
Considering Caterpillar’s monthly sales for the past year, the company’s sales are on the rebound as is evident from the following chart.
Caterpillar’s robust sales update follows an impressive first-quarter performance. Net income per share was 50 cents, compared with 39 cents in the year-earlier period, outperforming the Zacks Consensus Estimate of 39 cents.
The demand for Caterpillar’s heavy equipment is on the rise, given improving economic conditions, particularly in developing economies. Caterpillar is ramping up production to meet the recent surge in demand. Earnings in fiscal 2010 are expected to benefit from higher sales volume, absence of employee redundancy costs and favorable material costs. The company thus raised its 2010 earnings per share guidance to between $2.50 and $3.25 from its previous guidance of $2.50.
As the world’s largest maker of construction and mining equipment, Caterpillar’s sales are considered an indicator of global economic health. Caterpillar’s performance in May and the improvements noted in April and March in some regions are indicators of a reviving industrial economy.
The improvement in the industry is not only reflected in the performance of Caterpillar alone, but also of its key competitor, Deere & Co. (DE). Driven by an increased demand for construction equipment, Deere reported earnings of $1.58 per share for its second quarter ended April 30, beating the Zacks Consensus Estimate by 49 cents. Encouraged by the improving economy, Deere also raised its net income guidance from $1.3 billion to $1.6 billion for fiscal 2010.
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