Caterpillar Revenue Misses Estimates as China Sales Slow

Caterpillar Raises Forecast
Caterpillar is selling more excavators, dozers and dump trucks as U.S. construction spending recovers and the global mining industry boosts investment to meet projected commodities demand. Photographer: Daniel Acker/Bloomberg

Caterpillar Inc., the world’s largest maker of construction equipment, reported a gain in first-quarter revenue that was less than analysts estimated after sales fell in China and Brazil.

Revenue climbed 23 percent to $16 billion, the Peoria, Illinois-based company said in a statement today. The average of 13 estimates compiled by Bloomberg was for $16.1 billion. Net income rose to $2.37 a share, beating the $2.13 average of 21 estimates. Caterpillar raised its full-year profit forecast while maintaining its projected 2012 sales. The shares fell the most in seven months.

“They still reported a big number but lower than expected on near-term softness in China and Brazil,” Larry De Maria, a New York-based analyst for William Blair & Co. who recommends buying the shares, said in an interview. “There was no change to the top-line guidance. People want to see the whole thing.”

Caterpillar says sales in developing nations this year will be lower than anticipated, a reversal after 2011 growth in Latin America and the Asia-Pacific region outpaced North America, helping to drive record revenue and profit. The company is the latest manufacturer to report sales in China have been curbed. United Technologies Corp. yesterday posted a drop in Chinese orders while 3M Co. forecast below-trend growth in the country.

U.S. Sales

Caterpillar fell 4.6 percent to $103.44 at the close in New York, the biggest decline since Sept. 22.

China accounted for 3 percent of first-quarter sales, Michael DeWalt, Caterpillar’s director of investor relations, said today on a conference call. Chinese sales fell by $250 million to $300 million, the company said.

The company’s sales of excavators in China fell 51 percent in March from a year earlier, Jefferies said in an April 11 report that cited China Construction Machinery Association data. The industry has “too much inventory” in the country and Caterpillar plans to move some excavators to other regions, DeWalt said.

China’s effect on Caterpillar goes beyond just the sales of machinery in the country because its consumption of commodities drives mining globally, Chief Financial Officer Ed Rapp said in a telephone interview today.

China represents almost 40 percent of global base-metals use and a sustained slowdown may impact mining-equipment demand, according to Karen Ubelhart, a New York-based analyst at Bloomberg Industries.

Mining Deals

Caterpillar Chairman and Chief Executive Officer Doug Oberhelman has bet on growth in mining with the $8.8 billion purchase in July of Bucyrus International Inc. and the proposed acquisition of Hong Kong-based ERA Mining Machinery Ltd.

Caterpillar isn’t seeing signs that China’s cooling economy is slowing global mining-equipment demand, Rapp said.

“If you look at it from a demand on commodities perspective, China is continuing to grow,” he said.

Caterpillar maintained its full-year sales forecast of $68 billion to $72 billion and raised the full-year profit outlook to about $9.50 a share. That compares with the previous projection of $9.25 and the average estimate of $9.57 from 22 analysts.

Caterpillar’s ability to increase profit from new sales has improved, said Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc. in New York.

Process Improvement

“The operating leverage Caterpillar achieved was better than we expected, and demonstrates improvement in their processes, which can help the company sustain earnings momentum,” Levington said in an e-mail.

The company is still selling more excavators, dozers and dump trucks as the U.S. building industry recovers. Construction spending was 6 percent higher in February compared with a year earlier, U.S. Census Bureau data show. .

Caterpillar said that while the North American construction equipment rental fleet has increased slightly in size from post-recession lows, the average age of the machines is still close to a historical high.

The average age of the fleet is about 52 months, close to the peak of about 53 months, Barclays Plc said in an April 16 report. An estimated 200,000 units need to be bought annually to maintain that age, Barclays said.

Increasing demand and a record backlog of orders have spurred Caterpillar to increase its workforce to build more excavators and wheel loaders. U.S. headcount rose by more than 6,500 in the last year, excluding acquisitions, and is up about 7,200 in other countries.

The company’s capital expenditure this year will be $4 billion, unchanged from the prior estimates, with about half of that in the U.S.

Download: Earnings