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Dow-30 Earnings: Caterpillar Inc. - Second Quarter 2012
Shares of heavy machinery manufacturer Caterpillar (CAT – Free Caterpillar Stock Report) traded nicely higher after the Dow-30 component beat second-quarter expectations. In fact, an extensive line of products and services catapulted the company to a record-breaking performance. Sales increased 22% over the year-earlier tally, to $17.37 billion, driven by higher sales volumes, acquisitions, and price hikes. Although commodity prices have cooled in recent months, they remain at levels that are attractive for investment, leading to favorable conditions in the Resource Industries segment. Some improvement in construction activity and fleet upgrading, primarily in North America, powered sales of construction equipment. Lastly, voracious demand for energy in all corners of the world buoyed the Power Systems division. Operating leverage led to a more-than-commensurate advance in share profits, to $2.54, which eclipsed our $2.32 estimate.
Given the stellar performance during the June interim, the company has boosted its full-year 2012 share-earnings outlook by a dime, to $9.60. With a persistently strong dollar, management has tweaked it sales range from $68 billion-$72 billion to $68 billion-$70 billion. This outlook assumes that central banks throughout the world will ease policies in an effort to resuscitate economic growth.
We are cautious about the second half of the year. A number of factors, including concerns that momentum in domestic construction markets will taper off, cooling economic activity in developing countries, pressure on foreign earnings resulting from a strengthening greenback, and unsustainable rates of equipment replacement in advanced territories, suggest that Caterpillar faces a number of uncertainties. Adding it all up, we are increasing our 2012 bottom-line estimate by a modest $0.10 a share, despite the recent showing, to $9.85.
Barring a prolonged moderation in global industrial activity, momentum is probable on the operating front in the years ahead. Nonetheless, the lingering effects of restrictive monetary policies that were recently implemented in many corners of the world remain an issue. China and Brazil, two of Caterpillars most important emerging markets, had earlier taken steps to curtail inflation. However, with runaway prices in check, both countries have since taken a more accommodative stance, claiming that these economic engines will start churning at a faster rate.
Looking further out, prospects out to mid-decade appear bright, with emerging markets serving as a catalyst. In particular, demand from all corners of Asia for equipment to install power lines and bulldozers for infrastructure should recover. Too, Caterpillar has gradually boosted its presence in South America, which possesses a large natural resource base.
About The Company:Caterpillar Incorporated is the world’s largest producer of earthmoving equipment. Major global markets include road building, mining, logging, agriculture, petroleum, and general construction. Products include tractors, scrapers, graders, compactors, loaders, off-highway truck engines, and pipelayers. Also makes diesel & turbine engines and lift trucks. Foreign sales made up about 68% of the company’s total in 2011.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.