CAT, Sany and Chinese Land Sales
- CAT Management Changes: While it is hard to read the tea leaves in CAT’s management shake-up, it is unlikely that business unit heads would seek (or be encouraged) to retire if results were coming in above goals.
- Sany Heavy Management Changes: In a late Friday night regulatory filing, Sany Heavy appears to have announced significant changes at the top, with Mao Zhongwu leaving the Chairman role to work in the mining truck unit, which is not a promotion. CEO Zhou Wanchun is leaving the CEO role, another demotion.
- Two Management Shake-ups? Turnover at two major heavy equipment producers in as many days is not a positive sign. Boards and corporate owners tend not to fire managers that are producing excellent results and encourage top performing executives to stay on.
- Chinese Land Sales: Municipal land sales in China are off roughly 50% in Yuan terms in the top 4 cities and nearly 20% in square meters in recent months country-wide (see chart below from Darius Dale on our Macro team). That should impact Chinese demand for construction commodities, like iron ore, and construction equipment. Lower land purchases suggest less development activity on the commercial and residential side, while lower municipal revenues from land sales may impact local infrastructure spending. Weak construction activity in China is a driver of lower expectations for CAT and Sany.
- CAT Guidance: We should get CAT’s guidance for 2013 top line when the company reports a week from this Monday. We may see consensus for 2013 trend lower into the report as we suspect management may guide to a 2013 revenue decline.
Jay Van Sciver, CFA
Managing Director
HEDGEYE RISK MANAGEMENT
120 Wooster St.
New York, NY 10012