Caterpillar Inc. (CAT:US), the largest maker of construction and mining equipment, raised its full-year profit forecast as increasing demand from North American builders and overseas miners bucks an economic slowdown.
Earnings will be about $9.60 a share in 2012, up from a previous forecast of $9.50, the Peoria, Illinois-based company said today in a statement. That tops the $9.54 average of 21 analysts’ estimates compiled by Bloomberg. Caterpillar also narrowed its projected range for sales to $68 billion to $70 billion, from $68 billion to $72 billion forecast in April, citing “weaker economic conditions” and the stronger dollar.
Caterpillar, considered a U.S. economic bellwether, is selling more excavators, scrapers and dozers even as it sees a slowdown in some of its largest markets. Machinery sales are climbing as developed countries replace aging equipment and U.S. construction spending gains, rising 11 percent through May from an 11-year low in February last year.
“This is a positive surprise that Caterpillar is so constructive on the outlook given the macro uncertainty,” Larry De Maria, a New York-based analyst for William Blair & Co. who recommends buying the shares, said today in an interview. “The company is executing exceptionally well.”
Caterpillar rose 1.5 percent to $82.66 at 2:12 p.m. in New York, paring earlier gains of as much as 4.9 percent.
Share buybacks are “not on our radar,” Chief Executive Officer and Chairman Doug Oberhelman said on a conference call. Chief Financial Officer Ed Rapp also said on the call he would be disappointed if the company couldn’t reduce inventories by $1 billion by the year-end.
Dealer inventories of new machines rose by about $300 million in the quarter. Chinese inventories are being cut back after demand there slowed. Oberhelman said he doesn’t want to make a “bold” reduction in China so that Caterpillar has too few machines in the country when demand rebounds.
Investors are concerned that Caterpillar is building up too much inventory “that will hurt them if things get worse,” De Maria said in a separate e-mail.
Net income for the second quarter rose to a record $1.7 billion, or $2.54 a share, from $1.02 billion, or $1.52, a year earlier. Profit was more than the $2.28 average of 20 estimates (CAT:US) compiled by Bloomberg.
Sales gained 22 percent to $17.4 billion from $14.2 billion, compared with the $17 billion average of 14 analysts’ estimates.
Caterpillar said it also narrowed its sales forecast because of about $1 billion of “negative currency impacts.” The euro has fallen 15 percent against the dollar in the past 12 months while the British pound has dropped 4.8 percent.
The company said global economic growth will average 2.5 percent this year, lower than the expansion of more than 3 percent it forecast in April.
“We understand the world is facing economic challenges, and if it becomes necessary, we are prepared to act quickly as we did in late 2008 and 2009,” Oberhelman said in the statement.
“While we’re prepared, the good news is, this doesn’t feel like 2008,” he said. “Interest rates are low, central banks are prepared to inject more liquidity if needed, and housing is coming off lows.”
Caterpillar’s increase in its full-year earnings forecast comes after at least nine analysts in the last four weeks lowered their profit estimates.
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