Will Caterpillar Recover Faster Than Deere and Joy Global?

Heavy-equipment manufacturer Caterpillar (NYSE: CAT  ) will release its quarterly report on Wednesday, and the Dow component remains one of the poorest performers of the year so far. But even though problems in China and the rest of the global economy have hurt its prospects, Caterpillar earnings could bounce back strongly once sluggish macroeconomic conditions turn around, helping it potentially grow much faster than mining equipment rival Joy Global (NYSE: JOY  ) and agricultural equipment specialist Deere (NYSE: DE  ) .

Caterpillar has been a victim of a double-whammy to both of its core businesses. The slowing pace of economic growth in China and elsewhere in the emerging-market world has held back its construction equipment business, but for a long time high commodities prices made its mining-equipment business a bastion of strength. That fell apart earlier this year, when gold's plunge and weakness in other key commodities produced big damage to that business as well, hurting both Caterpillar and Joy Global. As hopes rise for a potential turnaround, can Caterpillar get off the mat, or will Deere's focus on the continually growing agricultural segment prove the best play in the industry? Let's take an early look at what's been happening with Caterpillar over the past quarter and what we're likely to see in its report.

Stats on Caterpillar

Analyst EPS Estimate

$1.67

Change From Year-Ago EPS

(34%)

Revenue Estimate

$14.32 billion

Change From Year-Ago Revenue

(12.9%)

Earnings Beats in Past Four Quarters

1

Source: Yahoo! Finance.

Will Caterpillar earnings ever bounce back?
Analysts have kept cutting their views on Caterpillar earnings in recent months, slicing another quarter per share from their third-quarter estimates and reducing both full-year 2013 and 2014 projections by about 10%. The stock has bounced along its recent lows, rising just 3% since mid-July.

Caterpillar posted ugly results in its second quarter, continuing the dour mood the stock has sustained all year. The company saw revenue plunge 16%, leading to a massive 43% drop in earnings per share. The company's mining-equipment business was especially hard hit, as miners started to pull back on equipment orders from both Caterpillar and Joy Global in order to preserve capital. Caterpillar cut its guidance for the full year by $0.50 per share, leading investors to conclude that a hoped-for turnaround won't materialize quickly.

Unfortunately, more recent looks at Caterpillar's prospects appear even grimmer. In the three-month period ending in August, even Latin America saw sales declines, joining every geographical segment except North America by falling into the negative column. Overall, sales declines of 10% paint a bleak picture for Caterpillar.

Caterpillar clearly lags behind Deere because of that company's agricultural focus, where high farm-commodity prices and strong incomes have supported massive capital investment in farm equipment. By contrast, Caterpillar's and Joy Global's customers in the mining industry find themselves strapped for cash and unable to raise capacity in a bad pricing environment, leading to drying-up business for the two equipment manufacturers.

Still, Caterpillar still shows signs of strong leadership in its industry. The company plans to boost prices on equipment in 2014, proving that even under signs of weak demand Caterpillar still thinks it's important to maintain solid profit margins rather than eating higher costs related to issues like engine emissions.

In the Caterpillar earnings release, watch to see whether the company outpaces not only Joy Global and Deere but also emerging mining-equipment player General Electric (NYSE: GE  ) . With GE having worked hard to make a foray into the sector, Caterpillar needs to hold off its conglomerate rival in order to maintain market share and stay on top of its industry.

Is Caterpillar your best bet for a global rebound?
Caterpillar has been hurt by the fact that many global regions aren't growing very fast anymore. But their resurgence could result not only in improving conditions for Caterpillar but also in windfall profits for select companies. A recent Motley Fool report, "3 Strong Buys for a Global Economic Recovery," outlines three companies that could take off when the global economy gains steam. Click here to read the full report!

Click here to add Caterpillar to My Watchlist, which can find all of our Foolish analysis on it and all your other stocks.


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