Zacks Industry Outlook Highlights: Deere & Company, Caterpillar and CNH Global

23 Sep, 2013, 09:30 ET from Zacks Investment Research, Inc.

CHICAGO, Sept. 23, 2013 /PRNewswire/ -- Today, Zacks Equity Research discusses the U.S. Oil & Gas, including Deere & Company's (NYSE: DE-Free Report), Caterpillar Inc. (NYSe:CAT-Free Report) and CNH Global NV (NYSE: CNH-Free Report)

Industry: Machinery



The IMF expects the United States to grow 1.7% in 2013 as against 1.9% predicted earlier and roughly 2.7% in 2014. High unemployment still seems to be a disturbing factor, though there is a glimmer of hope emanating from evidences of strengthening demands in the housing as well as durable goods markets. Conditions in the credit markets are also improving slowly.

The Machinery industry is one of the most attractive industries in the United States. Growth prospects for this industry can be deduced from the indicators to the performances in the recent past. In the second quarter of 2013 (Apr-Jun), industrial production in the United States rose by an annual rate of 0.6% while the same in the month of Aug rose by 2.7% as compared with the year-ago period. Manufacturing output decreased 0.2% in the quarter.

According to the US Census Bureau report published in Aug 2013, machinery shipments in the first half 2013 increased 4.1% year over year while new machinery orders grew 4.5%. However, machinery order backlog at the end of the first two quarters were down 10.0%. Shipments for construction and industrial machinery rose by 27.2% and 10.4%, respectively, while that for mining equipment and farm machinery dipped 6.5% and 7.3%, respectively.

Exports demand has been considered crucial for the future growth prospects of the US machinery industry. According to a report published by the Association of Equipment Manufacturers (AEM), the United States' construction equipment exports fell 21% in the first half 2013 while agricultural equipment exports registered a 9.5% decline.

Important Players of the Machinery Industry

Deere & Company's


Free Report

) fiscal third quarter 2013 (ended Jul 31, 2013) results were impressive. For the quarter, equipment sales rose roughly 4%, with price realization contributing 3%. The agricultural and forestry equipment provider is expanding globally to leverage benefits from the growing global farm industry.

Management anticipates equipment sales to decrease 5% year over year in the fiscal fourth quarter but increase by the same magnitude in the fiscal 2013. Net earnings for the year are projected to be approximately $3.45 billion, up from $3.3 billion expected earlier.

Caterpillar Inc.

(NYSe: CAT -

Free Report

) posted a 17% decline in Machinery and Power Systems sales in the second quarter of 2013. For the year 2013, the company expects revenue to range within the $56-$58 billion range as against $57-$61 billion expected earlier due primarily to the expectations of weak demand for mining equipment and expected reduction in dealers inventory.

Italy-based CNH Global NV (NYSE: CNH-Free Report) posted a year-over-year increase of 9% or 10% on a constant currency basis in its equipment sales in the second quarter 2013. Equipment sales comprised of 83% agricultural sales and 17% construction equipment sales. For 2013, management anticipates agricultural equipment unit volume in the market to increase 5% but for construction equipment unit volume to be flat to down 5%.

Earnings Trend of the Sector

Considering results of all the companies within the Industrial Products sector, it can be seen that results for this Zacks sector in the second quarter 2013 were disappointing on a year over year basis. Earnings fell 4.5% while revenue managed just a 0.6% increase. Earnings and revenue beat ratios (percentage of companies coming out with positive surprises) were 66.7% and 37.5%, respectively in the quarter.

However, results exhibited a positive trend when compared with the 8.9% earnings fall and 0.5% revenue decline reported in the first quarter 2013.

In a view of all the Zacks sectors combined, second quarter 2013 results were dominated by the finance sector which drove the overall earnings growth to 2.5% year over year. Excluding finance, earnings in the quarter registered a 2.9% fall. Sectors that dragged the results were Oil/Energy, Basic Materials, Technology, Industrial Products, Conglomerates, Medical and Consumer Staples.

Going forward, the trend seems positive for the Industrial Products sector, as the earnings decline is anticipated to further contract to 1% in the third quarter 2013 while earnings growth of 15.8% is expected in the fourth quarter. For 2013 and 2014, earnings growth of 1.6% and 10.8%, respectively are expected.

Revenue growth is likely to remain same in the third quarter but to increase slightly in the fourth quarter. For 2013 and 2014, revenue is anticipated to grow 0.8% and 3.3%, respectively.

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SOURCE Zacks Investment Research, Inc.