Bloomberg News

Caterpillar Sees Growth Through 2012 as Profit Beats Estimates

February 03, 2012

Jan. 26 (Bloomberg) -- Caterpillar Inc. posted fourth- quarter profit that beat analysts’ estimates and said Wall Street projections for this year were too conservative, lifting the stock market and bolstering expectations the world economy will escape a recession.

Shares of Peoria, Illinois-based Caterpillar jumped as much as 4.5 percent, leading today’s gain in the Dow Jones Industrial Average, after the company said net income climbed 60 percent in the quarter. Caterpillar said the global economy will grow 3.3 percent in 2012, up from 2.8 percent last year.

Caterpillar, the world’s biggest maker of construction and mining-equipment, surpassed analysts’ estimates for the 11th time in the last 12 quarters. Chief Executive Officer Doug Oberhelman has spent about $11 billion to buy companies including Bucyrus International Inc. to exploit a boom in the mining industry after prices advanced for commodities including gold, copper and coal.

“Caterpillar is absolutely an industrial bellwether, especially in terms of infrastructure and capital goods,” Larry De Maria, a New York-based analyst for William Blair & Co. who has an “outperform” rating on the shares, said in an interview. “The signal is that there is a lot of uncertainty but there is a bit more stability than a couple of months ago.”

Caterpillar climbed 3.3 percent to $112.64 at 11:43 a.m. in New York. The shares advanced 20 percent this month before today.

China Recovery

Fourth-quarter net income rose to $1.55 billion, or $2.32 a share, from $968 million, or $1.47, a year earlier, the company said in a statement. The average of 21 analysts’ estimates compiled by Bloomberg was $1.73 a share. The top forecast was $1.87.

A tax benefit also helped Caterpillar beat estimates, said Stephen Volkmann, a New York-based analyst for Jefferies & Co.

Profit in 2012 will be about $9.25 a share, Caterpillar said. That’s above the average estimate of $9.10 and within the $8 to $10 range Oberhelman set as a target for 2012 when he became CEO two years ago. Sales in 2012 are forecast at $68 billion to $72 billion. Revenue was $60.1 billion in 2011.

Prospects for the world economy in the year ahead have improved over the past quarter, with the start of a recovery in U.S. construction spending, Caterpillar said.

Sales of construction machines are expected to improve in developed countries in 2012, the company said. Machinery sales in the euro region will be at or above 2011 levels despite the sovereign debt crisis, it said. Monetary easing in China will lead to a “modest recovery” in sales in the country this year, the company said.

U.S. Spending

U.S. construction spending has risen 5.8 percent through November from March, when it reached the lowest level since October 1999, according to U.S. Census Bureau data. U.S. earthmoving-machinery volumes will increase as much as 12 percent in 2012, Robert McCarthy, a Chicago-based analyst for Robert W. Baird & Co., said in a report on Jan. 19.

The U.S., which made up 32 percent of Caterpillar’s 2010 revenue, will grow by at least 3 percent this year, the company forecast.

Capital spending at “major” mining companies is expected to climb 25 percent this year, according to data compiled by Bloomberg Industries.

Caterpillar said it had a record $29.8 billion backlog of orders at the year-end and that its capacity will constrain sales in 2012.

R&D Investment

The company acquired Bucyrus in July for $8.8 billion including debt, adding shovels and drills to its product range. Caterpillar also agreed in November to buy Hong Kong-based ERA Mining Machinery Ltd. for as much as HK$6.89 billion ($890 million).

The focus for Caterpillar in 2012 will now be on ensuring enough capacity to meet strong demand, De Maria said.

Caterpillar will concentrate on “continuing to improve quality, our investment in product development, integrating our acquisitions and adding production capacity,” Oberhelman said in the statement.

“We’re very tight on production capacity for many of our products and are continuing to invest in new and existing factories,” he said. “Our investments in capital expenditures and R&D will certainly add cost in 2012, but it’s the right thing to do.”

--Editors: Simon Casey, Tina Davis

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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