Caterpillar’s Stock Drops, and 2 Big Deals May Be to Blame

Two of Caterpillar‘s biggest-ever deals may have played a role in the $3 billion of market value that the company’s stock shed on Wednesday morning.

The maker of heavy equipment disclosed that its third-quarter profit tumbled 44 percent from the same time last year, while revenue fell more than 18 percent for the same period.

The company said quarterly profit dropped to $946 million, as revenue fell to $13.4 billion. With the company cutting its full-year earnings forecast yet again, investors sold off shares, leading to a 6 percent drop in the stock’s price as of midday Wednesday, to $83.87. Read more about CAT.

Catastrophic Quarter for Caterpillar

Caterpillar Inc. (CAT) is the largest heavy duty machinery manufacturer in the world. The company announced its third quarter (3Q) earnings of fiscal year (FY) 2013 on October 23, 2013.

Caterpillar reported third quarter sales of $13.4 billion, a 21% decline year-over-year (YoY). It missed estimates by almost $1.1 billion. The company’s earnings per share (EPS) of $1.45 missed estimates by $0.23. Operating income was down to $1.26 billion, a drop of almost 50% YoY, and 10% quarter-over-quarter (QoQ).

 

Caterpillar is segmented into three main categories, Construction Industries, Power Systems and Resource Industries. Construction Industries manufactures machinery used in infrastructure development while Power Systems manufactures machinery for power generation and Resource Industries makes equipment for mining industries. CAT.

Is Caterpillar's Dividend Streak in Jeopardy?

Caterpillar's (NYSE: CAT  ) fortunes have soared over the past 20 years, as the rise of emerging economies creating brand-new markets for the heavy-equipment manufacturer. Those opportunities helped Caterpillar become a dividend giant, establishing a 20-year track record of annual payout increases that has boosted its quarterly dividend more than 30-fold over that time frame. But now that Caterpillar's earnings have fallen substantially, dividend investors need to watch to make sure the stock's payout remains secure.

The same trends that helped Caterpillar rise so sharply since the early 1990s are now creating challenges for the company, as sluggish construction and infrastructure activity in China and the rest of the emerging market world has weighed on its growth prospects. CAT.

Caterpillar: Inventory Build-up Causing Orders to Dry Up

Caterpillar Inc. (CAT) is the bellwether for the machinery manufacturing industry. It designs, manufactures, markets and sells heavy machinery and equipment to the construction, mining and power generation industries.

The company operates on a global scale, and its performance is tied to macroeconomic conditions in different countries worldwide. For this reason, Caterpillar’s order growth and dealer inventory levels are considered a leading economic indicator.

CAT’s three business segments – Construction Industries, Power Systems, and Resources – together accounted for almost 94% of the company’s overall revenues in 2012. Each segment contributed roughly a third of total revenues, and a slowdown in any one segment can affect the company’s bottom-line significantly. CAT, RIO, DE, JOY

Are the Machines Going to Rise?

Industrial machinery has applications across nearly every industry. Major manufacturers like Caterpillar (CAT), Cummins (CMI), Deere & Co. (DE) and Joy Global (JOY) supply machinery and equipment to corporations around the world, and their sales data is an interesting indicator of where the global economy is headed.

Latest sales data from manufacturers and dealers of industrial machinery indicates that emerging economies, especially China, may not be growing as rapidly as they were back in 2010 and 2011. As demand in emergent markets slows down, dealers and distributors of industrial machinery have reported lower sales and a build-up of unsold inventory since the end of 2012. For example, Caterpillar dealers recently reported 30% lower sales year-over-year for the third quarter of fiscal 2013 (3QFY13). CAT.