Bloomberg News

Caterpillar Profit Misses Estimates on Japan Quake Impact

July 22, 2011

(Updates share price in fifth paragraph.)

July 22 (Bloomberg) -- Caterpillar Inc., the world’s largest construction and mining-equipment maker, posted lower- than-expected profit for the first time in 10 quarters after the Japanese earthquake and tsunami reduced sales, demand slowed in China and manufacturing costs rose.

Second-quarter earnings excluding $204 million in costs related to its acquisition of Bucyrus International Inc. were $1.72 a share, Peoria, Illinois-based Caterpillar said in a statement today. That trailed the $1.75 average of 20 analysts’ estimates compiled by Bloomberg. The shares dropped the most in 14 months in New York trading.

Caterpillar said the March 11 disaster in Japan caused “sporadic disruptions” at its plants and suppliers globally, losing the company $200 million in sales and $60 million in operating profit. Doug Oberhelman, who took over as chief executive officer in July 2010, is targeting China for growth as the country’s government tries to rein in inflation.

“Expectations were getting too high,” Eli Lustgarten, an Independence, Ohio-based analyst for Longbow Research who has a “neutral” rating on the shares, said in an interview. “People were expecting a beat and bump.”

Caterpillar dropped $7.18, or 6.4 percent, to $104.42 as of 10:30 a.m. in New York Stock Exchange composite trading. The shares earlier touched $103, the biggest intraday decline since May 6, 2010. Caterpillar has risen 11 percent this year.

R&D Costs

Net income rose 44 percent to $1.02 billion, or $1.52 a share, from $707 million, or $1.09 a share, a year earlier. Revenue increased 37 percent to $14.2 billion from $10.4 billion.

Caterpillar, whose first-quarter profit rose fivefold, had until today beaten analyst’s estimates since the first quarter of 2009. Manufacturing costs climbed by $364 million in the second quarter and expenses related to research and development, selling and administration rose by $239 million.

While the earthquake and tsunami in Japan caused a “sharp” drop in first-half output, reconstruction and the increased liquidity provided by the Bank of Japan should spur a recovery in the second half, Caterpillar said.

Caterpillar saw “some softening of growth” in China, Oberhelman said in the statement. China “is doing a good job of balancing growth and inflation” and Caterpillar is still positive on the country’s market, he said.

Mining Expansion

Caterpillar raised its full-year profit forecast excluding Bucyrus to $6.75 to $7.25 a share from $6.25 to $6.75 previously. It also raised its sales forecast to $54 billion to $56 billion from $52 billion to $54 billion.

Including Bucyrus, the company expects profit of $6.25 to $6.75 a share on $56 billion to $58 billion in sales.

Caterpillar is betting on expansion in mining with its $8.8 billion acquisition of Bucyrus, completed this month, and demand for construction machinery in developing countries to help drive growth. The company has forecast earnings of $8 to $10 a share in 2012 as demand for excavators, trucks and wheel loaders grows amid greater consumption of commodities and construction of roads, bridges and buildings in countries such as China, India and Brazil.

The Bucyrus acquisition adds surface and underground mining equipment products to Caterpillar’s portfolio, helping it benefit from rising populations and standards of living in emerging markets. It purchased Electro-Motive Diesel last year and its acquisition of MWM Holding GmbH in Germany is still pending.

(Caterpillar will host a conference call at 10:30 a.m. New York time, accessible at {LIVE <GO>}.)

--Editors: Simon Casey, Steven Frank.

To contact the reporter on this story: Shruti Date Singh in Chicago at ssingh28@bloomberg.net.

To contact the editor responsible for this story: Simon Casey at scasey4@bloomberg.net.


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