The company’s agricultural equipment segment will increase to approximately $3.41 billion in the second quarter of 2013, up from $3.06 billion in the first quarter of 2013. Overall, with rising demand, it is expected that annual revenue from this segment will be $13.3 billion in the current year, up from $12.3 billion in the previous.
Mining sector a headwind for this company
With slow mining growth in China, along with a recession in Europe last year, dealers at Caterpillar Inc. (NYSE:CAT) were pessimistic about future demand for construction and mining equipment and reduced their inventory by $700 million for the current year. This reduction in inventory levels negatively impacted Caterpillar Inc. (NYSE:CAT)’s sales of its construction and mining equipment. As this segment contributes one-third of the company’s sales, total revenue was down 17% year-over-year, amounting to $13.2 billion in the first quarter of 2013. It is estimated that Caterpillar Inc. (NYSE:CAT)’s total sales will be around $61 billion in 2013, down from approximately $66 billion in 2012.
The board of directors have authorized a $7.5 billion repurchase, which was scheduled to expire on December 2011 but is now extended through December 2015. The company has already used $3.8 billion of this total authorized repurchase. The company has a strong balance sheet, as in the first quarter it generated free cash flow of $368 million, which will help it with the repurchase. This should offset the impact of falling revenue in the construction and mining equipment segment and will boost investors’ confidence. In the second quarter of 2013, this strong cash flow will be utilized to repurchase $1 billion worth of shares.
Bottom line
Deere & Company (NYSE:DE) plans to expand its plant located in Ankeny, where it will produce agriculture-related equipment and assemble agricultural spray. Further, the company launched a new feature, StarFire Rapid Recovery, which will improve satellite re-connection speed. These strategies should help the company capture a higher market share.
CNH Global will merge with Fiat Industrial, which will help the company become the third-largest capital goods provider. Moreover, its agricultural segment is showing impressive growth due to macroeconomic factors.
Caterpillar Inc. (NYSE:CAT)’s construction and mining equipment segment is falling, as its dealers reduced their inventory. In order to offset and boost investors’ confidence, the company plans to resume its repurchase program.
Keeping these in mind, Deere & Company (NYSE:DE) CNH look like buys while Caterpillar Inc. (NYSE:CAT) is a hold.
The article 2 Machinery Companies to Buy, 1 to Avoid originally appeared on Fool.com is written by Madhu Dube.
Madhu Dube has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Madhu is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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