Citigroup analyst David Raso says that if there is indeed a slowdown looming in China, so far, it hasn’t affected Caterpillar’s (CAT) red-hot sales in the country. Caterpillar was able to turn in a solid Q2 by making up for dismal North American results with scorching numbers in China. Raso thinks that trend could continue:
While Magnitude of Any China Slowdown Still Unclear, Our Proprietary Checks Suggest It’s Not Yet Showing With CAT’s Largest China Dealer — In recent days we’ve communicated with a variety of our contacts in China regarding construction equip trends. Key feedback is that while some major OEMs and dealers with heavy exposure to north-northeast China have felt the slowdown this month from industrial factory & some mine shutdowns due to gov’t measures for the Olympics, the largest CAT dealer in China (est. 35%-40% of total CAT China sales, focused geographically on eastern/central/southeast China & Taiwan) is still on plan for August. As well, one major global OEM’s China President noted the August/Sept slowdown (according to his order book/ dealer feedback) is expected to pick back up in late September/fourth quarter with solid y-o-y 4Q growth (though less robust than the extremely strong 1H08).
But can CAT maintain this kind of momentum in the future? Many predict that the Chinese economy is due for a serious downturn as criplling inflation forces the government to abandon fuel subsidies and loosen monetary and fiscal policy. But Raso isn’t concerned:
Amid constant Street/media negativity, our fieldwork so far this quarter (some positive, some negative from various trips) leaves us comfortable with our above consensus ests for CAT & that CAT, if they were to provide ’09 guidance today would guide for another yr of EPS grth (CAT gives initial ’09 guidance in Oct). We’ll see what our future checks produce but with our current feedback, CAT still the poster child for our sector thesis of “no down EPS yr despite developed economies’ downturn, leading to sector revaluation higher.”
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