Caterpillar counting on U.S. construction surge to offset poor sales

 

Analysts say a resurgence in U.S. construction will help offset a struggling mining sector and poor sales overseas (Creative Commons).
Analysts say a resurgence in U.S. construction will help offset a struggling mining sector and poor sales overseas (Creative Commons).

Caterpillar Inc. (CAT), the world’s largest construction equipment manufacturer, is counting on a resurgence in U.S. construction in 2014 to offset weak overseas sales.

The Peoria-company, maker of a ubiquitous fleet of bulldozers and other manufacturing equipment, reported a 13 percent drop in sales for the first quarter.

But analysts say that shouldn’t hurt Caterpillar’s bottom line for the year.

“U.S. and European construction are both on the rise, and that’s definitely an upside for them,” said Kwame Webb, an equity analyst at Morningstar.

Since bottoming in April 2009, housing starts nationwide have increased from 478,000 units on an annual basis to 1.072 million units in March, according to the U.S. Census Bureau. Since June 2013, housing starts are up 29 percent, reflecting recovery in the beleaguered construction sector.

“The investment community is also looking at the transportation and power sales businesses, which have quietly been performing well,” Webb said.

Commodity price fluxes will help Caterpillar’s bottom line in other sectors, such as agriculture, according to William Blair & Co. analyst Lawrence De Maria.

Emerging oil and gas markets may also help boost Caterpillar’s profits in 2014, JP Morgan Chase analyst Ann Duignan wrote in her May note on the company.

The company bet big on mining in 2010 when it acquired mining equipment maker Bucyrus International Inc. for $7.2 billion. But as mining companies canceled projects, Caterpillar ultimately felt the brunt of the downturn.

Still, Caterpillar has outpaced earnings forecasts. The company reported $1.61 earnings per share in March, beating analyst forecasts by 28.8 percent. That was up from $1.54 earning per share Dec. 31, 19.4 percent ahead of forecasts.

Shares of the company are down 4 percent from the 52-week high of $107.15 set May 13 but are still up 13 percent for the year so far. Caterpillar shares closed Wednesday at $102.91, down 77 cents.

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