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Caterpillar Boosts 2011 Forecast as Profit Beats Estimates

Caterpillar Inc. (CAT), the world’s largest maker of construction equipment, posted first-quarter profit that topped analysts’ estimates and raised its full-year earnings forecast as sales surged in developing countries.

Net income rose more than fivefold to $1.23 billion, or $1.84 a share, from $233 million, or 36 cents, a year earlier, the Peoria, Illinois-based company said in a statement today. The average estimate of 21 analysts in a Bloomberg survey was $1.31 a share. Revenue increased 57 percent to $12.9 billion from $8.24 billion.

The full-year forecast is $6.25 to $6.75 a share, which would exceed the record $5.66 in 2008, on sales of $52 billion to $54 billion. The previous forecast was profit “near” $6 on revenue of more than $50 billion. The average estimates compiled by Bloomberg were $6.30 and $51.9 billion.

“We expect that the pace of world economic growth will support continued recovery in the key industries we serve,” Chief Executive Officer Doug Oberhelman said in the statement. “We are positive about the short-term U.S. economic outlook but believe bipartisan actions are needed in Washington to improve the long-run fiscal position of the U.S. government.”

The full-year forecast includes 2010’s purchase of Electro- Motive Diesel and excludes contributions from the pending acquisitions of MWM Holding GmbH and Bucyrus International Inc.

Spending Plan

Caterpillar said it expects global economic growth this year of about 4 percent, with developing countries expanding by 6.5 percent and the U.S. by 3.5 percent. The company plans about $3 billion in capital spending this year, with more than half of that in the U.S.

The company is betting on higher mining-equipment sales with its $8.6 billion acquisition of Bucyrus as Asian demand drives up commodity prices. The Bucyrus deal is expected to be complete in mid-2011. Business outside the U.S. is “booming,” Oberhelman told investors and analysts at the CONEXPO-CON/AGG construction-equipment conference in Las Vegas last month.

Caterpillar rose $2.77, or 2.5 percent, to $115.41 at 4:15 p.m. in New York Stock Exchange composite trading. The shares have climbed 23 percent this year, the best performer in the Dow Jones Industrial Average.

“The stock should trade up, although enthusiasm could be tempered by the fact that most of the full-year raise came in the first quarter,” Stephen Volkmann, a New York-based analyst for Jefferies & Co., said in a report today. He rates the shares “buy.”

Japan Quake

The company said that while the Japanese earthquake and tsunami in March didn’t damage its facilities, it affected “many” of the company’s suppliers. The disruption will likely cost about $300 million in sales and about $100 million of operating profit, the company said.

“Caterpillar posted results that were much better than our expectations, and its guidance raise was also more than we anticipated,” Joel Levington, a managing director in New York at Brookfield Investment Management Inc., said in an e-mail. “The company is benefitting from a very robust capital spending environment in the metals market, and that is overpowering headwinds from raw materials and the tragedy in Japan.”

The company has said it aims for 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.

‘Pent-Up Demand’

Caterpillar sees long-term upside in the U.S. due to “pent-up demand” to replace aging equipment fleets, Chief Financial Officer Ed Rapp said in an interview.

Earnings were little changed during the last surge in demand, when sales rose 24 percent from 2006 through 2008. Oberhelman is trying to change that during this rebound.

The new forecast implies an incremental margin, or the profit made on new sales, in the 25 percent to 30 percent range, Volkmann said. Caterpillar said that the incremental margin was about 28 percent in the first quarter and that, excluding the effect of major acquisitions, it expects a full-year rate of close to 25 percent.

Caterpillar’s global full-time workforce rose 11 percent to 105,394 at the end of the quarter from a year earlier. The company also increased its flexible workforce by 10,709 and gained 1,454 employees from acquisitions in the period. Most workers were added outside the U.S.

Because of high unemployment, central banks “will remain cautious in raising rates,” Caterpillar said. The U.S. Federal Reserve will keep its target for the federal funds rate between 0 and 0.25 percent through at least the end of this year and will complete its quantitative easing program in June 2011, and then stabilize reserves in the banking system for at least several months to assess economic developments, the company said.

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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