Caterpillar Infuses Optimism In Machinery Stocks: Top 4 Picks

 | Mar 13, 2018 09:30PM ET

Caterpillar Inc. (NYSE:CAT) reported a surge of 33% in global retail sales for the three months ended February 2018, following a 34% rise noted in the past month. The company had last witnessed growth at these levels in 2011. This robust pace can be attributed to improvement across all regions as well as segments. Within Machines, Resource Industries and Construction Industries reported positive gains for the eighth and 13th consecutive months, respectively.
Caterpillar Starts 2018 on a Strong Note
In the first two months of 2018, Caterpillar’s sales growth has averaged 33.5%. In February, the company’s performance was driven by a 41% increase in Asia Pacific sales. The region has been a consistent contributor for the company since it posted the first positive reading in August 2016. Latin America registered growth of 39% while Europe, Africa and Middle East (“EAME”) and North America sales both went up 30%.
The Resource Industries segment delivered an impressive 60% sales growth in February — its best performance so far. This was led by a surge of 62% and 60% in North America and Asia Pacific sales, respectively. EAME and Latin America reported growth of 58% and 57%, respectively.
Sales growth in the Construction Industries segment went up 27%. Sales advanced 36% in Asia Pacific and 30% in Latin America. North America and EAME sales rose 25% and 20%, respectively.
Sales in the Energy & Transportation segment rose 21%. Growth was led by sales to the Oil & Gas sector, which reported a 29% rise. Sales to the Power Generation sector advanced 19%. In the Industrial sector, sales improved 12% and the transportation sector advanced 6%.
2017 was a Comeback Year
Last year marked a turning point for Caterpillar, which had been bearing the brunt of a weak mining industry over the past few years. Retail sales growth entered the positive trajectory in March following an unprecedented stretch of declines for 51 months. Retail sales have shown significant improvement ever since, notching up an average of 10.3% in 2017.
Caterpillar also reported year-over-year improvement in both top and bottom-line in the first quarter of 2017 — the first time in 10 quarters, owing to its incessant efforts to cut down costs and strength in the Asia Pacific region and the construction sector. This set the ball rolling for the company which delivered upbeat quarters for the rest of 2017 as most end-markets began to improve.
Consequently, in fiscal 2017, Caterpillar’s adjusted earnings per share surged 101% year over year to $6.88 from $3.42 in fiscal 2016. This was a major turnaround for the company which had suffered a 36% drop in earnings in fiscal 2016. Also at fiscal 2017 end, Caterpillar’s backlog was at $15.8 billion, up from $15.4 billion at third-quarter 2017 end, mainly driven by higher backlog in Resource Industries.