Caterpillar net climbs 34% on Asia sales, shares rise
24-JUL-2008 Intellasia | Bloomberg
Jul 24, 2008 - 7:00:00 AM
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Caterpillar Inc., the world's largest maker of earthmoving equipment, said second-quarter profit climbed 34%, exceeding analysts' estimates, on demand for backhoes and mining tools in China and the Middle East.
Net income increased to a record US$1.11 billion, or US$1.74 a share, from US$823 million, or US$1.24, a year earlier, the Peoria, Illinois-based company said in a statement. Sales rose 20% to US$13.6 billion, and Caterpillar raised its 2008 sales forecast.
Developing markets this year may grow more than six times as fast as in North America, where the US may find it hard "to avoid a recession,'' Chief Executive Officer Jim Owens said in the statement. He also cited "softening'' in Japan and Western Europe. Roadwork lifted demand in China and the Middle East, and rising energy prices spurred mining-tool sales in Russia.
Caterpillar said it will raise prices worldwide by 5% to 7% as of January to cope with higher costs for steel, iron ore and crude oil. A bump of as much as 5% for machinery took effect this month. The company, which received 62% of its sales overseas last year, has room to raise prices in part because the dollar has declined 10% in a year against an index of six major currencies.
"The market had had some fears that Cat wouldn't have pricing power to be able to pass along the raw materials cost increases,'' Stephen Hoedt, an analyst with National City Corp., told Bloomberg Radio. Hoedt, based in Cleveland, helps manage US$34 billion, including Caterpillar shares. "We saw today that Cat, and then some, has the ability to pass that through.''
Shares
Caterpillar rose US$1.75, or 2.4%, to US$74.98 at 4:02 p.m. in New York Stock Exchange composite trading. The stock has gained 3.3% this year.
The earnings put the company "on track to deliver our fifth straight year of record profits,'' Owens, 62, said. The average of 19 analyst estimates compiled by Bloomberg was for profit of US$1.54 a share and sales of US$12.3 billion.
The company doesn't provide quarterly forecasts. For the full-year, Caterpillar now predicts profit of US$6 a share, within the range of US$5.64 to US$6.18 it projected in October. Sales may now reach US$50 billion, above the prior forecast of US$47.2 billion to US$49.5 billion. Analysts, on average, project US$6.03 a share and revenue of US$48 billion.
"The guidance is disappointing, but probably conservative'' based on slowing North American and European growth, said Larry DeMaria, an analyst with Sterne Agee & Leach Inc. in New York. He recommends holding Caterpillar. "Cat's ability to straddle emerging markets and developed economies gives it the ability to grow the top line in a challenging environment.''
Regional sales
Machinery and engine sales grew around the globe, helped by a weak US dollar and led by a 52% gain to US$2.24 billion in the Asia Pacific region. China, one of the world's fastest growing economies, lifted sales on demand for wheel loaders and mining equipment. Caterpillar is building four plants in China to compete with Japanese rival Komatsu Ltd
In the region that combines Europe, Africa and the Middle East, mining orders countered slowing construction demand in Europe, for growth of 22% to US$4.44 billion. Latin American sales climbed 27%. Exports rose 30% in the quarter, Chief Financial Officer David Burritt said in an interview.
"We have a global portfolio that can compete with anyone,'' Burritt said. "That growth is coming from the developing countries rather than the developed world is clearly one of the highlights for us.''
US and Canada
Sales in the US and Canada revenue rose 7.4%. Caterpillar won a US$397.1 million contract during the quarter to supply dozers and armor kits to the US Army.
Rising coal prices are bringing in more sales of mining shovels and trucks in North America, and Caterpillar forecasts revenue will be unchanged to up 3% this year. That's above a prior projection for sales to fall as much as 2%. Caterpillar has been hurt as slowing home construction and tighter lending restrictions in the US cut sales of backhoes and excavators.
The North American economy may grow about 1% this year, the company said, above its April forecast for growth of 0.5%. Europe will slow to below 2%, while developing economies are forecast to grow 6.5%.
Owens expects the US economy, including the housing market, to begin recovering next year, allowing the company to meet its 2010 sales forecast of US$60 billion.
"We will get this problem behind us,'' Owens said in an interview with Bloomberg Television. "It will probably take another six months to a year, but it will come back.''
Caterpillar, whose economic commentary in October contributed to a decline in the Standard & Poor's 500 Index, today lowered its projection for US housing starts to 980,000 this year, the lowest since 1945.
The company sees "no sign of a recovery in housing'' this year and predicts nonresidential building will fall 1%. New construction rose 9.1% to a 1.066 million pace in May, the US Commerce Department said July 17.
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