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Dow 30 Earnings: Caterpillar Inc. - Third Quarter 2010
The world's largest manufacturer of earthmoving equipment Caterpillar (CAT - Free Analyst Report) has announced strong third-quarter 2010 operating results. Reported sales and diluted share net were $11.13 billion and $1.22, versus year-earlier figures of $7.3 billion and $0.64 and our estimates of $10.5 billion and $1.00, respectively.
Demand for machinery and engines were greatest in developing countries, and business in developed markets continues to steadily recover from the recent recession. Machinery sales rose a solid 84%, to $7.2 billion, while engine sales increased 21%, to $3.25 billion. Despite a drag from foreign currency exchange, sales advanced thanks to higher volume and better pricing. At the Machinery division, Latin America posted triple-digit gains (121%) and other regions reported favorable high double-digit (60%-89%) comparisons. Geographic engine increases were more modest, in the 6%-71% range, but still very respectable; there, too, Latin American led the advance. Revenue from CAT Financial slipped 5%, to $682 million, due to reduced earning assets and lower interest rates on receivables.
Inventories at the company and its dealers are quite lean, and management expects good sell-through in the quarters ahead. The Caterpillar Production System is reaping substantial efficiencies and cost savings.
CAT's updated operating guidance calls for sales of $41 billion-$42 billion and share earnings of $3.80-$4.00. Our revised estimates are at the upper ends of these ranges. The company is expanding its product line and manufacturing capacity, most notably in the mining and locomotive areas. Geographically, there's a strong emphasis on the China market.
CAT estimates a 2011 top line of about $50 billion. We're more conservative with an assessment of $49 billion for sales and share net of $6.25.
Caterpillar shares are ranked to perform at least as well as the broader market in the next six to 12 months. Long-term business prospects are good, but at the recent share price, the stock is not all that attractive on a 3- to 5-year basis. The equity is best suited to those with a near-term focus.
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 two-thirds of the company’s total in 2009.
At the time of this article’s writing, the author did not have positions in any of the companies mentioned.