Caterpillar Profit Tops Estimates as Economy Improves

A Caterpillar excavator
A file photo of a used Caterpillar Inc. excavator at the Gregory Poole Equipment Company dealership in Raleigh, North Carolina. Photographer: Jim R. Bounds/Bloomberg

Caterpillar Inc., the world’s largest maker of construction equipment, posted its first earnings increase in seven quarters, exceeding analysts’ estimates, as the global economy began to improve.

First-quarter profit excluding costs for a new health-care law was 50 cents a share, beating the average estimate of 39 cents a share in a Bloomberg survey of 21 analysts. Caterpillar stock rose the most since mid-February.

Full-year sales, profit and economic growth will be higher than executives previously predicted, Peoria, Illinois-based Caterpillar said today in a statement. Lower costs, aided by the elimination of about 37,000 workers and contractors from late 2008 to the end of 2009, helped compensate for a drop in machinery and engine sales.

“For Caterpillar, there is clearly a cyclical recovery going on,” Joel Levington, a managing director of corporate credit for Brookfield Investment Management Inc. in New York, said in an interview after the results. “The key for Caterpillar is operational execution, which has been an area of challenge for this company over the past several years.”

Net income was $233 million, or 36 cents a share, after a loss of $112 million, or 19 cents, a year earlier. The profit was its first year-over-year increase since the second quarter of 2008, before the U.S. financial crisis.

Caterpillar rose $2.87, or 4.2 percent, to $71.65 at 4:15 p.m. in New York Stock Exchange composite trading, the biggest gain since Feb. 11. The shares have climbed 26 percent this year.

2010 Forecasts

Full-year profit will be about $2.50 to $3.25 a share, compared with a January forecast of about $2.50, Caterpillar said today. Analysts, on average, estimated $2.66 a share.

Sales fell to $8.24 billion, an 11 percent decline from the year-earlier quarter, before the full brunt of the financial crisis and global recession had shrunk revenue. Caterpillar today said sales in 2010 will rise to $38 billion to $42 billion, exceeding analysts’ average estimate of $36.6 billion.

Currency boosted sales by $142 million, primarily due to a stronger euro and Brazilian real, the statement said.

“Capital markets are in much better shape than last year, demand for our products is rising, and we’re seeing it in most geographic regions,” Mike DeWalt, director of investor relations, said on a conference call with analysts and investors today. “We’re working with our suppliers and within our own factories to ramp up production, and in some cases to accelerate planned capacity additions.”

Economic Outlook

Caterpillar raised its prediction for world economic growth in 2010 to 3.5 percent, from 3 percent in its previous forecast. The U.S. may expand 3.5 percent while developing countries may grow more than 6 percent, the company said.

“Economic conditions are definitely improving, particularly in the world’s developing economies,” Chief Executive Officer James Owens said in the statement. “Industry activity and orders are significantly higher than last year and are at record levels in some areas.”

First-quarter machinery sales fell about 1.5 percent to $5.26 billion, while engine sales dropped 28 percent to $2.29 billion. Financial products revenue declined 3.9 percent to $687 million. Total sales fell in all regions except for Latin America, which was unchanged, and Asia-Pacific, which gained 20 percent to $2.26 billion.

Order Activity

Owens said the company is seeing increased order activity related to mining and energy. Sales of aftermarket service parts, which bottomed in the second quarter of 2009, improved in all regions, particularly in Asia and Latin America.

The first quarter may have been too early to reflect the uptick in orders, Jeff Windau, an analyst for Edward Jones & Co. in St. Louis, said in an interview. “It just takes time to fill the channels and provide the products.”

After cuts in 2009, dealers held new machine inventories about flat with year-end 2009 and reduced engine inventories about $200 million, the company said.

The company’s machines include excavators and bulldozers used in construction, haul trucks used at quarries and mines, and graders and loaders used to build highways and roads. The company also makes turbines used to generate electricity and engines that power ocean-going ships.

Caterpillar cut about 19,000 full-time jobs and about 18,000 part-time and temporary workers from late 2008 through the end of last year as demand plunged amid the recession.

Employment Changes

Worldwide employment was 95,290 at the end of the first quarter, a drop of about 7,800 from the year-earlier period, the company said today. Caterpillar said today it has added back about 1,500 jobs since year-end because of higher production volume, including 600 in the U.S.

The 1,500 jobs mostly included people called back from layoffs, including people recalled to support exports, DeWalt said in an interview.

Standard & Poor’s Ratings Services today revised the outlook for the company’s debt to stable from negative based on “favorable economic trends and an improved cost structure due to actions the company has taken over the past year.”


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