What Caterpillar's Sales Figures Tell You About Its Stock

In case anyone was in any doubt as to the ongoing bifurcation in prospects between developed and emerging markets, then Caterpillar's (NYSE: CAT  ) latest monthly sales data will make it clear. Moreover, based on Caterpillar's numbers, investors in the industrial sector should look closely at their stocks' exposure to various industries. As a consequence of what Caterpillar just reported, companies like Joy Global (NYSE: JOY  ) can expect some varied conditions in the mining sector, and there was even some negative news for General Electric Company (NYSE: GE  ) in the power generation market. It's time to look more closely.

Caterpillar reports mixed construction trends
The company reports out of three separate industrial segments, and Fools already know that in its first-quarter results in April, Caterpillar upgraded its forecast for full-year construction machinery sales from 5% to 10%. At the same time, it downgraded its view on full-year resource industry sales from a negative to 10% to a negative 20%. Its energy and transportation guidance was left unchanged. Fast forward to the May sales data and a few themes are emerging.

First, there appears to be a strong divergence between Asia/Pacific and North America in terms of construction trends.

Source: Caterpillar presentations

In addition, according to a Bloomberg research report, China's fixed-asset investment continues to moderate from the torrid pace of growth in previous years.

Source: Bloomberg

On a more positive note, a commonly followed indicator of U.S. construction conditions, the Architectural Billings Index, is indicating that the U.S. is recovering from the weather affected winter -- good news for those companies with heavy exposure to commercial construction in North America.

Source: American Institute of Architects

Mining and resources continues to struggle
Caterpillar's resource machinery sales are also indicating a divergence between North American and global prospects. The strength in North America is primarily due to an expected increase in coal production in the U.S. Indeed, Joy Global's CEO, Edward Doheny, recently outlined that he expected U.S. coal production to incrementally rebound this year.

Source: Caterpillar presentations

But the ongoing weakness in global markets suggests that Joy Global, and Caterpillar -- which only generated 34% of its resource machinery sales from North America in the first quarter -- will continue to struggle in 2014. Joy Global's big hope is that it can increase its service based revenues by servicing more of its own equipment sold to customers.

Power generation sakes weak, a warning for General Electric?
Perhaps the most concerning figure in Caterpillar's sales data was the weakness in its power generation sales.

Source: Caterpillar presentations

This is obviously a concern for General Electric, particularly as it's in process to acquire the energy assets of Alstom in a bid to consolidate the sector. General Electric intends to generate cost synergies from the deal, but if Caterpillar's figures are indicating the start of a downturn in the sector, then General Electric will find it a lot harder to do so.

The bottom line
All told, Caterpillar's sales numbers are giving a mixed picture. On the one hand, North American construction activity looks to be strengthening -- in-line with Caterpillar raising its guidance for machinery sales to the sector -- but China's fixed asset investment growth continues to moderate. Moreover, China's construction industry is a key component of mining and materials demand, and the last thing the mining industry, and Joy Global, needs right now is a slowdown in China's growth. As a consequence Fools should look to favor U.S.-focused construction plays.

With regard to the power generation figures, it's probably too early to conclude that a trend is in place, so General Electric shareholders need not panic yet, but it's something to keep an eye out for, especially in the light of the situation with Alstom. The general message from the sales figures is that the theme of the developed world's prospects improving relative to the emerging world in 2014 still applies.

You can't afford to miss this
"Made in China" -- an all too familiar phrase. But not for much longer: There's a radical new technology out there, one that's already being employed by the U.S. Air Force, BMW and even Nike. Respected publications like The Economist have compared this disruptive invention to the steam engine and the printing press; Business Insider calls it "the next trillion dollar industry." Watch The Motley Fool's shocking video presentation to learn about the next great wave of technological innovation, one that will bring an end to "Made In China" for good. Click here!

Read/Post Comments (1) | Recommend This Article (0)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 07, 2014, at 1:12 AM, tstorey1 wrote:

    Cat is selling a lot of iron in China. China has a long way to go before roads and cities mature. The rate of car ownership is tiny compared to modern nations.

    Cat is sagging a little? Buy some shares. "The sky is falling" is the exact time to buy.

    Apple is overpriced! It was time to buy when the stock cratered and everyone did well, except for the people who sell on weakness. CAT is a buy now and a buy tomorrow.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 3011342, ~/Articles/ArticleHandler.aspx, 9/2/2015 3:18:28 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Lee Samaha

Investing commentary to help retail investors outperform professionals. I research and write post-earnings analysis of leading companies. Follow me on Twitter or Google+ to receive quick and thorough earnings analysis of your favorite stocks.

Today's Market

updated Moments ago Sponsored by:
DOW 16,275.58 217.23 1.35%
S&P 500 1,935.76 21.91 1.14%
NASD 4,712.48 76.37 1.65%

Create My Watchlist

Go to My Watchlist

You don't seem to be following any stocks yet!

Better investing starts with a watchlist. Now you can create a personalized watchlist and get immediate access to the personalized information you need to make successful investing decisions.

Data delayed up to 5 minutes

Related Tickers

9/2/2015 3:02 PM
CAT $76.10 Up +1.20 +1.60%
Caterpillar, Inc. CAPS Rating: ***
JOY $22.17 Up +0.07 +0.32%
Joy Global, Inc. CAPS Rating: ****
GE $24.47 Up +0.59 +2.45%
General Electric C… CAPS Rating: ****