Analyst Note| Scott Pope, CFA |
As the pandemic impeded commerce across the globe and spooked dealers, Caterpillar’s revenue declined 31% in the second quarter to $10 billion. Caterpillar’s independent dealer base reduced inventories by $1.4 billion in the quarter compared with a $500 million increase in the second quarter of 2019. This $1.9 billion change was a major factor in the $4.4 billion year-over-year sales decline. Caterpillar’s retail sales decline was a less severe 23% with Asia-Pacific the sole geography that grew at the retail level (+7%). Despite significant rationalization of its manufacturing footprint in the past decade, Caterpillar has significant fixed costs. We were modestly impressed that operating margin was 7.8% in the quarter, which was a major improvement over the 1.9% it experienced in 2009 during the financial crisis. Adjusted EPS plummeted to $1.03 from $2.83 in second-quarter 2019. Our fair value estimate of $148 remains unchanged.