Shares of Caterpillar Inc. (NYSE:CAT) have tumbled down in recent weeks by more than 15%. The recent downgrade of the company by Goldman Sachs isn’t likely to pull up Caterpillar Inc. (NYSE:CAT)’s stock.Does this mean Caterpillar Inc. (NYSE:CAT) is facing dire times ahead? Is it time to reevaluate this company? Let’s have a close look at this company, and evaluate its performance compared to related companies and the heavy machinery industry.
Caterpillar Inc. (NYSE:CAT)’s revenues grew by nearly 9.5% during 2012 compared to 2011. Moreover, the company’s operating profit expanded by almost 20%. Therefore, the company’s profitability grew from 8.2% in 2011 to 8.6% in 2012. So the company grew in 2012 despite the slowdown inChina’s growth and the ongoing debt crisis inEurope. But if the company did so well, why Caterpillar Inc. (NYSE:CAT)’s stock isn’t pulling up?
Looking back to 2011, the company’s growth was much more impressive as its revenues grew by more than 40% and its operating income increased by 80%. This puts the company’s growth in 2012 in a different perspective. Moreover, looking into 2013, the company’s outlook (page 2 of its fourth quarter financial reports) isn’t optimistic: Its revenues are expected to range between $60 and $68 billion. The company’s revenues reached $65.8 billion in 2012. In other words, the company doesn’t expect its revenues to grow much (if at all) during 2013. This wide range is due to the company’s uncertainty around its future growth in leading economies including U.S, Europe andChina.
Compare to some other heavy machinery companies such as Joy Global Inc. (NYSE:JOY), Deere & Company (NYSE:DE) Caterpillar’s growth in revenues was less impressive: Joy Global’s revenues grew by more than 28% during 2012; the net sales of Deere & Company (NYSE:DE) increased by 13%. But not all heavily machinery companies did well in 2012: revenues of Cummins Inc. (NYSE:CMI) declined during 2012 by 4%.
In terms of operating profitability, Caterpillar Inc. (NYSE:CAT) is in the middle of the pace with a profit margin of 13% during 2012. Its profit margin grew in recent years, but didn’t pass the profit margin of other heavy machinery companies. As presented in the chart below, Joy Global Inc. (NYSE:JOY) is leading the way with over 20% profit margin. Deere and Cummins Inc. (NYSE:CMI), each have a profit margin of nearly 13%.
At least in terms of dividend yield, Caterpillar is leading the way with an annual yield of 2.45%. In comparison, Joy Global pays an annual dividend of $0.70 per share per year, which comes to an annual yield of 1.25%; Deere offers an annual yield of 2.4%; Cummins pays a yearly yield of 1.8%.
Caterpillar’s payout ratio isn’t high and reached 24% in 2012. But compared to other companies in its industry, Caterpillar’s payout isn’t low. The table below shows that Joy Global has the lowest payout ratio while Deere and Cummins have similar payout ratios to Caterpillar’s.