Caterpillar Sees Growth Through 2012 as Net Beats Estimates

Caterpillar Profit Beats Estimates
A Caterpillar Inc. skid steer loader grades soil at a house under construction at the KB Home Mabel Bridge community in Orlando, Florida. Photographer: Andrew Harrer/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 2.1 percent to $111.31 in New York. The shares rose 20 percent this month before today.

U.S. Recovery

The company will see more orders as pent-up demand is released and customers replace older products, Chief Financial Officer Ed Rapp said. With corporate balance sheets now in “pretty good shape,” companies such as Caterpillar are more willing to invest in product development, additional capacity and making acquisitions, he said.

“Some of those factors that are impacting our business, our view of where things are, are going to play out in other industries as well,” Rapp said in an interview, citing automakers as an example.

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. 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.

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.

Chinese Sales

Sales of construction machinery 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 will lead to a “modest recovery” in Chinese sales, the company said.

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

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 highest prediction was $1.87.

A tax benefit also helped Caterpillar beat estimates, said Stephen Volkmann, an analyst at Jefferies & Co. in New York.

Record Backlog

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 for 2012 that the company set as a target three years ago. Oberhelman reiterated the target when he became CEO in 2010. Sales in 2012 are forecast at $68 billion to $72 billion. Revenue was $60.1 billion in 2011.

Sales in 2012 will be constrained by production capacity, Caterpillar said. It had a record $29.8 billion backlog of orders at the year-end.

Caterpillar doesn’t have any “big holes” to fill when it comes to acquisitions, Oberhelman said on a conference call. The company acquired Bucyrus in July for $8.8 billion including debt, adding shovels and drills to its product range. It also agreed in November to buy Hong Kong-based ERA Mining Machinery Ltd. for as much as HK$6.89 billion ($890 million).

Rapp said on the call he anticipates Caterpillar spending “a lot of time” in 2012 integrating those businesses.


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