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Caterpillar (CAT) May Sales Surge 24%, Raises Dividend

Caterpillar Inc. CAT reported a rise of 24% in global retail sales for the three months ended May 2018, a deceleration from the 28% rise witnessed in April and average sales growth of 30% noted in the past four months of this year. This deceleration can primarily be attributed to the slowdown in Resource Industries and Energy & Transportation compared with the prior months. Nevertheless, Resource Industries and Construction Industries continued to report positive gains for the 11th and 16th consecutive months, respectively. The company’s share price dipped 1.77% due to the disappointing performance.
In May, Caterpillar’s performance was led by a rise of 43% in sales in Latin America followed by growth of 36% noted in Asia Pacific. North America sales were up 20% while Europe, Africa and Middle East (“EAME”) sales improved 16%. Compared with April, sales growth decelerated across all regions, except Asia Pacific.
Resource Industries, Energy & Transportation Disappoint
Resource Industries segment reported growth of 35% in May, lower than 57% rise witnessed in April as all regions posted lower results compared with the previous month. Sales in Latin America soared 124% while EAME sales surged 42%. North America reported growth of 37%. Sales in Asia Pacific dipped 3%, after posting growth for seven consecutive months. Notably, Asia Pacific had reported an average positive growth of 40% in the first four months of this year.
Sales growth in the Construction Industries segment went up 22%, compared with the rise of 23% noted in April. Sales advanced 42% in Asia Pacific and 18% in Latin America. North America and EAME sales rose 17% and 9%, respectively.
Sales in the Energy & Transportation segment rose 5%, a major drop from the average sales growth of 18% in the past four months. The Oil & Gas sector and Power Generation sector reported sales growth of 31% and 3%, respectively. This was offset by the Transportation sector and Industrial sector’s sales decline of 40% and 12%, respectively.
Caterpillar Hikes Dividend
In a separate development, Caterpillar announced that its board of directors has approved an increase of 10% in quarterly dividend to 86 cents per share. The move reflects the company’s balance sheet strength and improved cost structure which has once again enabled it to deliver incremental returns to shareholders.
The increased dividend will be paid on Aug 20 to shareholders of record as of Jul 20. The last dividend hike had come in June 2017, when it was raised by 1.3% to 78 cents. The company has consistently paid a cash dividend every year since its inception and a quarterly dividend since 1933.
Caterpillar’s has a five-year average dividend yield of 3.12% and five-year average payout ratio of 57%. With the increased dividend, Caterpillar’s dividend yield will go up from the current 2.0% to 2.2%.
Is the Recent Slowdown Worth Worrying About?
The company’s overall retail sales growth graph has remained in the positive territory since March 2017. Retail sales averaged 10.3% in 2017 and 29% in the first five months of 2018. Consequently, Caterpillar has gained 47.7% over the past year, outperforming the industry’s rally of 46.5%.
The dip in sales growth witnessed in May is a transitory phase in all probability as the company is likely to benefit from strong order rates, lean dealer inventories and an increasing backlog through the balance of 2018. The Construction segment will gain from infrastructure development in China and continued demand improvement in North American residential, non-residential and infrastructure markets. Rising commodity prices will drive Resource Industries and Energy & Transportation’s revenues. Cost cutting efforts and additional investments in expanded offerings and services will drive growth.
Caterpillar currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Other Stocks to Consider
Some other top-ranked stocks in the sector include Axon Enterprise, Inc. AAXN, DMC Global Inc. BOOM and W.W. Grainger, Inc. GWW. All of these stocks carry the same rank as Caterpillar.
Axon Enterprise has expected long-term growth rate of 25%. Its shares have surged 167% in a year’s time.
DMC Global has expected long-term growth rate of 20%. Its shares have appreciated 219% over the past year.
Grainger has expected long-term growth rate of 12%. Its shares have appreciated 78% over the past year
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