Cutting Cat in Half Never Looked So Good (CAT)

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Caterpillar Inc (NYSE: CAT) gave us some figures this morning showing that there is still some trouble in this economic recovery.  The maker of heavy industrial vehicles and equipment showed that dealer sales of its heavy equipment fell by a whopping 48% in August.  The largest drop was in the truck and bus segments and in its industrial segment.  The economy may be stabilizing, but an effective cut in half of these does not bode well for the thesis of a sudden return of large investments into cap-ex.  There is still some hope here that comparable sales figures will start to get easier after the next month or so.

Also noted was that North American dealer sales of its equipment were down by 57% in August.  This is a slightly less-bad figure than the -59% reported for July. By region, Latin America sales fell by 37% in August versus a 28% drop in July; while Asia-Pacific region saw a 33% drop compared to a 30% drop in July.  The EMA, or Europe, Middle East, and Africa, was down 50% in August as it was in July.

Where this gets interesting is that some headlines out there call this “stabilization.”  The problem with that notion is that the economy and the stock market are now no longer just accepting the plateau answer.  For stocks to continue to support prices after these huge gains in the last six months, investors are demanding more “Show Me” success.  Growth is of course what follows stabilization after most recessions.  It is just a question of when that returns.  We should have only one to three months of these figures before we start to see easy year over year comparable figures.  It was in September that the rugs started getting jerked out from under everyone and when businesses started seeing sudden and immediate drop-offs in sales and in foot traffic.  In short, that was when the recession went into overdrive.

Shares are down over 2% at $52.25 and its 52-week trading range is $21.71 to $74.50.  The heavy equipment maker’s market cap is just under $32.5 billion after today’s drop.  The hope that the comps get easy from here is what is keeping that sales drop from tearing more out of share prices.

JON C. OGG