Is this CAT ready to pounce?
According to Caterpillar Inc. (NYSE:CAT)’s first quarter financial results for 2013, Caterpillar’s net revenue was 17% lower than the results recorded in the same time in 2012. Operating profits fell from 14.5% in Q1 2012 to 9.2% in Q1 2013. The sharpest fall was in resource industries, which includes mining-equipment sales. One of the reasons for the drop in sales was due to changes in dealers’ new machine inventories. But the drop in revenue was in all regions and across all of its main business segments.
According to the company’s recent monthly update, machinery-retail sales fell during March in all regions except Latin America. Retail sales of power systems also fell across sectors except in the transportation sector, which grew by 19% in March.
One of the factors that may have helped drive the company’s stock higher in recent days is Caterpillar Inc. (NYSE:CAT)’s share-repurchase program of $1 billion.
But beyond this issue, many speculate that the company might start to show growth in the coming months. The recent decision by the Reserve Bank of Australia to cut interest rates by 25 basis points to 2.75% may jump-start the mining industry in Australia. This could be reflected in a rise in Caterpillar Inc. (NYSE:CAT)’s sales in the resource industries sector.
High natural-gas prices in 2013 compared to 2012 may strengthen demand for coal in the U.S for generating electricity, which could also raise the demand for Caterpillar’s mining equipment. These issues might curb the recent fall in Caterpillar Inc. (NYSE:CAT)’s revenue, but as long as the leading economies show slower growth (as in China and the U.S) or even slowdown (as in Europe), then Caterpillar’s revenue is likely to be adversely affected by these trends.
Will Joy bounce back?
Joy Global Inc. (NYSE:JOY) is another big heavy-machinery company focused on mining equipment. Most of the company’s revenue comes from coal projects. Much like Caterpillar Inc. (NYSE:CAT), Joy’s stock also hasn’t performed well and has shed 5% year-to-date.
As I have pointed out, if demand for coal in the electricity sector begins to rise in the coming months, considering the high natural-gas prices (compared to last year) such a rally would likely augment Joy’s revenue in the coming months. In the first quarter of 2013, coal production remained lower than the production recorded in the first quarter of 2012 and 2011 (each).
The soft coal market in the U.S was also reflected in the company’s drop in original-equipment sales during the first quarter of 2013. Joy’s net sales rose during the quarter by 1.2% mainly due to the sharp rise in the surface-mining equipment segment, which grew by almost 14% year-over-year (y-o-y). Once again, if the coal market rebounds in the U.S., this could augment Joy’s revenue in the coming months.
The farmer’s market
Shares of Deere & Company (NYSE:DE) rallied in the past month by nearly 5%. Most of the growth may have stemmed from the company’s decision to augment its dividend payment by almost 11% so that its current annual yield is at 2.2%. The company’s recent quarterly results were positive as revenue grew by almost 10% (y-o-y) and Deere & Company (NYSE:DE)’s operating profits rose from 11.8% in Q1 2012 to 12.7% in Q1 2013.
The company expects its agriculture and turf operations are likely to rise in 2013 by 6% (y-o-y). Most of the growth in sales is projected to come from South America. Construction and forestry sales are expected to rise by only 3% in 2013.
Bottom line
All three companies I have listed above have some similarities and rely on the future progress of leading economies along with the future developments of leading commodities prices. These companies are likely to rely on South America as the main source of growth. Of the three companies, my guess is that Deere & Company (NYSE:DE) will be able to meet expectations and continue to grow its business operations. Caterpillar Inc. (NYSE:CAT) and Joy might find it harder to produce revenue growth in 2013.
The article Will Caterpillar Recover in 2013? originally appeared on Fool.com.
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