Asia Pacific Helped Deliver A Solid Quarter For Caterpillar
Caterpillar (NYSE: CAT) released its Q2 earnings earlier this week, marking the second consecutive quarter in which the company beat consensus estimates. The trends that we saw in the first quarter continued in Q2 as well. The results were driven by strength in the Asia Pacific construction industry, increased resource industry demand from Latin America and strength in aftermarket sales of oil & transportation products. CAT’s high restructuring costs over recent years have finally started to pay off as its overall profits went up by nearly 60% in the second quarter. Caterpillar’s restructuring costs are expected to remain high for at least a few more quarters. We see some early signs of recovery in the resource and energy industries, but the volatility in commodity and oil prices continue to pose risks.
Construction Builds Growth Momentum
Caterpillar’s construction sales increased nearly 11% in Q2 driven by increased demand from Asia Pacific and Latin America. The demand in Asia was primarily due to strength in China, where demand for construction equipment was up significantly. The strength in China was driven by government support for infrastructure and strong residential investment. We expect this trend to continue in China due to underlying demand and government support. The North American construction industry has not improved much from last year, and we expect infrastructure spend in the U.S. to remain fairly stagnant for some time unless the government passes a major infrastructure bill.
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Energy and Transportation Businesses May Continue to Face Headwinds
Although Caterpillar’s Energy and Transportation businesses increased overall, the increase was only marginal. Caterpillar managed to grow its oil and gas revenues due to higher industrial aftermarket sales, but its transportation sales continued to decline.
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