Caterpillar's (CAT 0.49%) latest three-month sales numbers ending in July again show how coronavirus woes continue to hurt the industrial company. Each month, Caterpillar releases statistics for its global retail machinery sales for the previous three-month rolling period, to give investors an idea about the company's performance on an ongoing basis.
More importantly, Caterpillar's machine sales numbers can also help investors gauge the health of global economies since the company, considered a bellwether, breaks down its sales both in terms of segment and geographic region.
From that standpoint, Caterpillar's July sales reveal a lone silver lining.
A key geographic market showing strength
For the three months ending with July, Caterpillar's worldwide machinery sales dropped 20% versus the year-ago period. Comparatively, sales were down 23% for the three months ending with June and May.
Image source: Getty Images.
Caterpillar's latest data throws light on two interesting trends:
- The Asia-Pacific region is evidently turning out to be a strong market.
- Demand for mining equipment, which is part of Caterpillar's resource industries' segment, is picking up.
The table below shows the year-over-year machinery sales change in two of Caterpillar's segments -- resource industries and construction industries -- and the total change for all three segments, including energy & transportation.
| Segment | Asia-Pacific | EAME* | Latin America | North America | World |
|---|---|---|---|---|---|
| Resource industries (decline) | (7%) | 25% | (21%) | (49%) | (19%) |
| Construction industries | 10% | (11%) | (5%) | (35%) | (20%) |
| Total | 5% | (2%) | (11%) | (38%) | (20%) |
*EAME: Europe, Africa, Middle East region. Data source: Caterpillar.
As you can see from the table above, total machinery sales from the Asia-Pacific region improved 5%. During Caterpillar's second-quarter earnings conference call in July, management called Asia-Pacific a "bright spot," hinting how demand from China in particular was gathering steam.
Recovery in the Asia-Pacific region is an important trend to note as it was Caterpillar's second-largest market after North America in 2019, contributing 23% to its total revenue.
In resource industries, mining activity is picking up with easing coronavirus lockdowns, especially in mining hot spots like Africa. South Africa, for example, is one of the world's largest producers of gold and the leading platinum producer. With prices of precious metals like gold rallying and more mines opening up, I expect the trend in resource industries to continue.
For its energy & transportation segment, Caterpillar breaks down sales by end-user market. Here are the numbers for the period ending with July:
| Energy & Transportation End Market | Retails Sales Change (Decline) |
|---|---|
| Power Gen | 8% |
| Industrial | (43%) |
| Transportation | (26%) |
| Oil & Gas | (19%) |
| Total | (16%) |
During its Q2 earnings conference call, management credited strong demand for "data centers and emergency power" for higher sales from its power generation unit.
The road ahead for Caterpillar
While Caterpillar continues to face an uncertain and challenging business environment (one that has even compelled management to refrain from providing any sales or earnings guidance for the full year), improving sales trends in the Asia-Pacific region and spots like mining in the EAME market are worth keeping an eye on and should provide investors some respite.
