Caterpillar CFO Sees ‘Tail Wind’ From Demand in U.S., Europe
Caterpillar Inc. (CAT), the largest construction and mining equipment maker, said the business cycle is in the early stages of a recovery and the company expects to see a “tail wind” from U.S. and European demand.
“We are just two years into it,” Chief Financial Officer Ed Rapp said today in an interview at Bloomberg’s headquarters in New York. “If you go back into history, our cycle is six, seven years.”
Caterpillar said last week 2011 profit and sales jumped and its order backlog reached a record $29.8 billion at year-end as demand for some products outpaced manufacturing capacity. Orders from customers replacing older equipment has yet to match the last peak in regions including the U.S., which is Peoria, Illinois-based Caterpillar’s largest market.
“That catch-up in demand, that replacement cycle in the U.S. and Europe, is going to play out,” Rapp said. That “tailwind is going to be there.”
Caterpillar has focused on investing early in the global economic recovery, he said. The company roughly has spent about $20 billion on capacity expansions, research and development and acquisitions such as Bucyrus International Inc. over the last two years, he said.
Caterpillar forecasts global economic growth of 3.3 percent in 2012, up from 2.8 percent last year. The U.S. will expand more than 3 percent, the company forecast Jan. 26 when it published its fourth-quarter earnings.
U.S. consumption of heavy-duty construction and mining vehicles used in earth moving rose 12 percent last year and 21 in 2010, after plunging 58 percent in 2009, according to data from Manfredi & Associates.
“The opportunity is there for more growth,” Rapp said. “The thing that impedes our customers today is just general business confidence,” given uncertainty about U.S. taxes and government infrastructure spending, he said.
Rapp, 54, joined Caterpillar as a pricing analyst in 1979 and became CFO in 2010. He said he’s worked through four recessions. In 2009, when the last U.S. contraction was still happening, sales tumbled 37 percent as construction slowed and commodity prices collapsed.
Caterpillar said last week 2012 earnings will rise 25 percent to about $9.25 a share, meaning the company will meet its target of $8 to $10 first set in 2009.
“Most of the people in the audience had a doubting eye” when the target was first announced 2 1/2 years ago, Rapp said.
The company said it aims to more than double profit over the next three years, to $15 to $20 a share in 2015.
While Caterpillar may see opportunities for so-called bolt- on acquisitions, most of its growth will be organic as the company builds factories in countries including the U.S., China, Indonesia and Thailand, Rapp said. Caterpillar’s expansion will lead to further hiring, he said. Not including acquisitions, the company’s global workforce grew by more than 14,000 in 2011. Caterpillar had 125,099 full-time employees globally as of Dec. 31.
Caterpillar bought Bucyrus in July for $8.8 billion including debt to add 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).
Caterpillar dropped 0.2 percent to $110.33 in New York. The shares have advanced 11 percent in the past year.
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