Bloomberg News

Caterpillar Earnings Top Estimates as Economy Recovers

October 24, 2011

(Updates with closing share price in sixth paragraph.)

Oct. 24 (Bloomberg) -- Caterpillar Inc., the world’s largest construction and mining-equipment maker, posted higher- than-expected third-quarter profit and sales and said 2012 revenue will gain as the U.S. and global economies improve.

Net income climbed 44 percent to $1.14 billion, or $1.71 a share, from $792 million, or $1.22, a year earlier, the Peoria, Illinois-based company said in a statement today. The average of 15 analysts’ estimates compiled by Bloomberg was for $1.57. Sales increased 41 percent to $15.7 billion, beating the $14.9 billion average of analysts’ estimates. The shares advanced as much as 6.3 percent.

While the European debt crisis and the level of U.S. growth are concerns, they don’t “signal the onset of recession,” Caterpillar said. The world economy will grow at 3 percent in 2011 and 3.5 percent in 2012, with the U.S. and Japanese post- earthquake reconstruction accounting for much of the improvement, it said.

“In this very disappointing recovery, sectors related to industrial machinery, mining and agriculture are definitively outperforming the rest of the economy,” said Adolfo Laurenti, deputy chief economist at Mesirow Financial Inc. in Chicago. “Those earnings suggested at least those pockets of strength are still doing well and that reduces the risk that something will happen to the economy at large.”

Demand for mining equipment is providing growth for Caterpillar in the U.S. and in other countries. Caterpillar completed its $8.8 billion acquisition of Bucyrus International Inc. in July to add products such as drills and roof supports. Metals and coal producers are raising investment to meet rising commodities demand from developing nations.

Aging Equipment

Caterpillar rose 5 percent to $91.77 at 4:11 p.m. in New York.

The U.S. will expand by 1.7 percent this year and 2.5 percent next year, while China will grow by about 9.3 percent and about 9 percent respectively, the company said.

Caterpillar’s forecasts are in line with the median of 80 economists in a Bloomberg survey, who expect 1.7 percent growth in 2011 and 2 percent growth in 2012. The economists put the odds of a return to recession in the next 12 months at 30 percent, according to the median estimate of 51 economist. The survey was conducted from Oct. 5 to Oct. 11.

Demand to replace aging equipment is the main driver in the U.S. for Caterpillar and rising dealer rental fleet utilization is also positive, Chief Financial Officer Ed Rapp said in a telephone interview. More broadly, the company sees U.S. economic growth improving amid low interest rates, inflation that’s under relative control and “very good” liquidity, Rapp said.

Jobs Added

“In terms of the U.S., what our 2011 and 2012 outlook does is it’s primarily based on what we would consider relatively low growth in the U.S. but not a double dip,” Rapp said. U.S. demand is rising off an “incredibly low base.”

Caterpillar said it added 4,800 jobs in the quarter, 2,000 of them in the U.S. The company employed a total of 121,513 full-time workers on Sept. 30 and 27,385 “flexible” workers.

“Although there is a good deal of economic and political uncertainty in the world, we are not seeing it much in our business at this point,” said Chief Executive Officer Doug Oberhelman in the statement.

Caterpillar said full-year profit will be $6.75 a share and sales will be at the top end of a previously forecast range of $56 billion to $58 billion. Revenue in 2012 will rise 10 to 20 percent. The company said its order backlog is at an all-time high. It plans to increase production levels for several products as supply remains tight in 2012.

‘Big Expectations’

“This quarter, people had pretty big expectations and the company delivered on all of them,” Ted Grace, a Boston-based analyst for market maker Susquehanna Financial Group, said in a telephone interview. “People are going to look at the confidence they have in the guidance for 2011 and 2012 and be encouraged by that.”

Third-quarter sales in Caterpillar’s resource industries unit doubled to $4.6 billion, with about half the increase coming from Bucyrus. Bucyrus will contribute $5 billion of sales next year after contributing $2 billion in 2011, Caterpillar forecast.

Caterpillar’s 2012 guidance and recently affirmed capital investment plans from mining companies will be “viewed favorably by the market,” Joel Levington, managing director of corporate credit in New York at Brookfield Asset Management, said in an e-mail.

BHP Billiton Ltd., the world’s largest miner, said in August that capital expenditure in 2012 will be $20 billion. BHP said in February that 2011 spending would be $15 billion.

Revenue from Caterpillar’s power systems unit rose 21 percent to $5.08 billion. That reflected the acquisition of Electro-Motive Diesel Inc. in August and higher energy demand boosting purchases of engines and turbines, Caterpillar said. The construction industries unit sales increased 41 percent to $4.9 billion.

--Editors: Simon Casey, Jasmina Kelemen

To contact the reporters on this story: Shruti Singh in Chicago at ssingh28@bloomberg.net; Joshua Zumbrun in Washington at jzumbrun@bloomberg.net

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


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