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The Good, Bad, and the Ugly in Caterpillar Inc.'s Sales Data

Caterpillar's machine sales have been in the garbage lately. Source: Caterpillar. 

If you're reading this and you have the slightest interest in Caterpillar (NYSE: CAT  ) as a short- or long-term investment, you already know the company's problem: Its resource industries segment profits are plunging because of a steep sales decline in its Asia-Pacific region. Looking at the three-month rolling sales data through May, one would surmise that Caterpillar's heavy machinery comes with a complementary disease, scaring away any would-be customers overseas. Let's review the recent sales data, as ugly as it is, and put it in a long-term perspective.

The good
Finding a sliver of good in May's data is difficult. After some digging, North America's performance across Caterpillar's segments provided a small bright spot in the otherwise dreary data. 

North America was the only region to post positive retail sales in Caterpillar's overall machine retail segment data, with a 14% jump -- all data is three-month periods ending in May, compared to the prior year. Splitting that 14% increase in overall sales into resource industries and construction industries, North America's sales were up 7% and 17%, respectively. While the region's 7% sales gain in resource industries may not seem significant, the second-best performance checked in with a decline of 47% -- you read that correctly. A 7% gain seems incredible now, doesn't it?

That seems like a fitting segue into the bad news from Caterpillar's sales data.

A rebound in China's end mining market would be a huge boost for CAT. Source: Caterpillar.

The bad
Unfortunately, the bad news is that bad news itself has been a consistent theme, which investors already know well. To put it in a long-term view, this is how the three-month rolling sales data has checked in over each of the last five months, starting in January: down 8%, down 8%, down 12%, down 13%, and finally May's 12% decline.

Another bad spot in the sales data was the downturn in Caterpillar's other main segment, it's energy and transportation business. May's three-month rolling data was the first time its sales checked in with a decline compared to the prior year's result. Energy and transportation retail sales declined 3% in May, compared to the prior two-month increases of 7% and 3% for March and April, respectively.

Now let's get to the ugly, the reason behind Caterpillar's overall sales drag.

The ugly
Asia-Pacific continues to wreck overall sales data measurements, no amount of positive sales recordings have been able to outweigh its negatives. In Caterpillar's resource industries section of its overall machine sales, Asia-Pacific's decline hit a negative 69% -- the worst of any region. Asia-Pacific did have a partner in crime, as Latin America's sales in the same segment were down 62% in the three-month data ending in May. Those two heavily outweighed North America's 7% gain to post an overall drop in resource industry sales by a whopping 46%.

The upshot?
Despite weak sales and declining business performance, Caterpillar has always proven it is capable of returning value to shareholders. Caterpillar has also done a fine job of creating a new strategy for its dealerships, which should boost performance. All the while, Caterpillar has cut costs and slashed its workforce to control damage.

The vast majority of Caterpillar's problems still remain in its Asia-Pacific operations. Investors are hoping that the end mining environment, which Caterpillar's machinery sales are heavily linked to, improves over the next year.

That hope has fueled Caterpillar's 19% year-to-date rise in stock price, as well as its nearly 30% gain over the last 12 months. With that in mind, consider that over the past eight quarters, Caterpillar's machine, energy and transportation revenues and operating profits have declined 25% and 51%, respectively. 

Unfortunately, investor optimism of trying to catch the bottoming of Caterpillar's business won't last forever; the company needs to post some better sales data soon, or investors' patience will wear thin, and it won't take much for a sell-off to start. 

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Daniel Miller

As a Motley Fool Industrial Specialist, I use my marketing and business background in the automotive industry to evaluate major automakers and other large industrial corporations. Follow me on twitter for tweets about stocks, cars, sports, and anything I find amusing.

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9/2/2015 4:01 PM
CAT $76.10 Up +1.20 +1.60%
Caterpillar, Inc. CAPS Rating: ***