Caterpillar (CAT, Financial) recently declared its fourth quarter result for the fiscal 2014. Total sales and revenues were marginally down by 1% year over year, to record $14.244 billion. The decline in revenue was mainly due to the currency impact resulted from weakening of euro and Japanese yen. While sales for new equipment were slightly lower, aftermarket parts sales were slightly higher than the fourth quarter of 2013.
For the fiscal 2014, the Company reported revenue of $55.184 billion, almost flat as compared to $55.685 for the fiscal 2013. Despite the drop in the sales revenue, the profits per share increased by 2.2%, to record $5.88 per share. If we exclude the restructuring cost, the profits per share were up by 6.9%, to record $6.38 for fiscal 2014 as compared to $5.97 in fiscal 2013.
Journey Ahead
The relatively slow growth in the world economy and continued weakness in commodity prices mainly oil, copper, coal and iron ore can be the headwinds for Caterpillar's sales. Global economic growth is also anticipated to be moderate in 2015. Despite the slow economic growth and falling commodity prices, the company expect sales revenue to cross $50 billion for the fiscal 2015; this is a good sign for the investors.
In the past two years, the company was focused on the restructuring activities, and now expects to reap the benefits. The restructuring activities can leverage in lowering the long term cost structures. The anticipated restructuring cost for the fiscal 2015 is expected to be around $150 million or $0.15 per share. Profits are anticipated to be around $4.60 per share, or $4.75 per share exclusive of the restructuring cost.
Next year, the consensus of analyst anticipates the company to grow by 6.1% . It is also anticipated to grow at by 9.69% every year for next five years. EPS is expected to be around $4.74 for the current fiscal 2014 and can rise to $5.03 in next fiscal year of 2016.
The company anticipates growth in the European market as the economy in reviving in various European countries.
The Company has strong balance sheets with healthy cash flow; this can assist the company with its share repurchase programs and also the restructuring activities to leverage future growth.
Share repurchase program can benefit the investor
Caterpillar is looking forward to benefit shareholders through its share repurchase program. The company had allocated $10 billion under the share repurchase program that expires in December 2018. In 2014 it had executed $2.5 billion in repurchase programs and $7.5 billion remaining to be executed by 2018. The company has a strong cash position that will enable it to execute the share repurchase programs and benefit its investors. The share repurchase programs will also leverage the EPS value with the reduced share outstanding on execution of share repurchase programs. This is one reason why the analysts anticipated growth in EPS next year.
Conclusion
With a trailing P/E of 13.65, Caterpillar looks cheap. Also, its forward P/E of 15.95 indicates that its earnings are expected to improve. With a good dividend payout of 2.60%, the stock could be a good bet. The share repurchase program of the company also looks quite impressive and further goes on to exemplify the company’s interest in safeguarding its investors. So, investors should try to have a closer look at Caterpillar, as it might turn out to be a good bet if the situation in the industry improves.
