According to the world's largest maker of construction equipment, the global economy is humming on all cylinders:
Caterpillar (CAT) raised its prediction for world economic growth in 2010 to 3.5 percent, from 3 percent in its previous forecast. The U.S. may expand 3.5 percent while developing countries may grow more than 6 percent, the company said.
“Economic conditions are definitely improving, particularly in the world’s developing economies,” Chief Executive Officer James Owens said in the statement. “Industry activity and orders are significantly higher than last year and are at record levels in some areas.”
But is it? If you drill down into today's "better-than-expected" first-quarter results (see CAT earnings call transcript here), the revenue data seems to tell a different story. Consider the following posts from two of my daily must-read blogs:
"How Could This Be A Recovery With Caterpillar Sales Like These?" (Business Insider's The Money Game)
Earlier we noted that Caterpillar's quarterly earnings could basically be boiled down to: Asia good, America bad.
An 8-K filed later on emphasizes this point, and looking at the chart we're really perplexed as to how one might consider the US economy -- at least when it comes to the kind of earth-moving equipment that Caterpillar says -- in recovery.
Retail Sales of Machines by region for the 3-month rolling period compared with the same months of the prior year are:
Down 21% from the first three months of 2009? What's going on here?
"Here Kitty-Kitty (Cat)" (The Market Ticker)
So what did we get?
For the first quarter, Caterpillar reported a profit of $233 million, or 36 cents a share, compared with a prior-year loss of $112 million, or 19 cents. Excluding items such as tax charges related to new health-care legislation and prior-year restructuring impacts, per-share earnings rose to 50 cents from 39 cents.
That's good! A profit .vs. a loss; exactly what one would expect. How were revenues?
Revenue dropped 11% to $8.24 billion.
Analysts polled by Thomson Reuters had forecast earnings of 39 cents a share on $8.84 billion in revenue.
Uhhhhhhhh..... wait a second.
Economic recovery eh?
Machinery sales were down 1% from a year ago - but I thought a year ago was the depths of the recession and we have been recovering since? So how do we get a negative year-over-year comparison?
Worse, in North America (that's here!) machinery sales were down 15% with dealer inventories half of year ago levels. That is, not only is heavy equipment not selling, dealers don't think it will be in the near future either. So how did we get big increases? Asia, up 40%. Yep, that matters, and it's what drove the results.
Engine sales were even worse, off 28%, and even in Asia they were down, in that case 15%.
The street is cheering this report on the back of everyone and their brother pumping the company (most especially the fools on CNBS) but the facts are what they are. With no revenue increases you can argue for improving profit due to firing huge numbers of people all you want, but the top-line, particularly in America, is horribly bad and does not point to any sort of turn-around in construction equipment sales of any sort, nor any improvement in over-the-road trucks and other engine markets (such as marine.)
Maybe we should start calling it the "unrecovery"?