Caterpillar Exceeds on Record Sales - Analyst Blog

By
A A A

Caterpillar Inc. ( CAT ) posted an impressive 53% increase in profit to $2.25 per share in the fourth quarter of 2011 from $1.47 per share in the same quarter of 2010, excluding the impact of acquisition of Bucyrus International, Inc. The profit far exceeded the Zacks Consensus Estimate of $1.73 per share.

Revenues soared 35% to an all-time record of $17.2 billion in the quarter, driven by higher sales volume, especially new equipment. Excluding the impact of acquisition of Bucyrus International, revenues went up 24% to $15.9 billion. These compared with the Zacks Consensus Estimate of $15.6 billion.

The improvement in sales volume was mainly attributable to higher end-user demand.  Dealer-reported new machine inventory levels went up more than $700 million during the quarter.

Operating profit increased 52% to $1.96 billion compared with $1.29 billion in the fourth quarter of 2010. The improvement was driven by higher sales volume and better price realization, partially offset by higher costs and the negative impact of currency.

Manufacturing costs increased $228 million due to higher costs related to incentive compensation, production volume and capacity expansion programs. Material costs escalated due to higher steel costs. Selling, general and administrative (SG&A) and research and development (R&D) expenses scaled up $226 million driven by higher volume and increased incentive compensation.

Segment Results

Machinery and Power System revenues surged 36% to $16.6 billion, due to the acquisition of Bucyrus and higher sales volume. Operating profit jumped 50% to $1.9 billion from $1.2 billion a year ago.

Financial Products' revenues grew 4% to $752 million, due to the positive impact from higher average earning assets, a favorable change from returned or repossessed equipment and higher miscellaneous net revenues. These were partially offset by an unfavorable impact from lower interest rates on new and existing finance receivables.

Financial Products' profit increased to $134 million from $105 million in the fourth quarter of 2010. The increase was attributable to a $17 million favorable change from returned or repossessed equipment and a favorable impact of $15 million from higher average earning assets.  These were partially offset by an increase in SG&A expenses.

Full Year Results

Caterpillar recorded an impressive 88% rise in profits to $7.79 per share in 2011 from $4.15 per share in the previous year due to record sales, excluding the impact of acquisition of Bucyrus. This compared very favorably with the Zacks Consensus Estimate of $6.80 per share.

Total revenue increased 35% to $57.6 billion, excluding the impact of acquisition of Bucyrus. Including the impact of acquisition of Bucyrus, Caterpillar saw an all time-record sales of $60.1 billion, up 41% growth from 2010 driven by increased sales volume (particularly new equipment) on higher end user demand. These compared with the Zacks Consensus Estimate of $58.1 billion.

Operating profit was $7.2 billion compared with $4.0 billion in 2010. The increase was attributable to higher sales volume and improved price realization, partially offset by higher manufacturing costs, higher SG&A and R&D expenses and the negative impact of currency.

Financial Position

Caterpillar had cash and short-term investments of $3.1 billion as of December 31, 2011, down from $3.6 billion as of December 31, 2010. Total debt stood at $34.6 billion as December 31, 2011 translating into adebt-to-capital ratio of 73%.

In 2011, the company generated net cash of $7.0 billion from operating activities compared with $5.0 billion in the prior year. Meanwhile, capital expenditures (excluding equipment leased to others) increased to $2.5 billion from $1.6 billion in 2010.

Guidance

Caterpillar anticipates world economy to grow about 3.3% in 2012, a marginal improvement from about 2.8% in 2011. The company expects to record sales of revenues in a range of $68.0 to $72.0 billion for 2012, which includes results from acquisitions of Bucyrus and Motoren-Werke Mannheim Holding GmbH.  

It also expects profits to increase to $9.25 in the year due to higher sales. Capital expenditures in 2012 are expected to be about $4.0 billion, with about half in the U.S.

Our Take

Peoria, Illinois-based Caterpillar Inc. is the manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. The company is a leading U.S. company in an industry that competes globally from a principally domestic manufacturing base.

The company operates three divisions - Machines, Engines and Financial Products. It competes with CNH Global NV ( CNH ), Komatsu Ltd. ( KMTUY ) and Volvo AB ( VOLVY ) but is way ahead of its peers.

Caterpillar's strong brand name, pricing power and global dealer network put it in a vantage position to capitalize on the growing need for infrastructure development worldwide. We believe Caterpillar's expansion plans of opening new facilities and furthering existing operations, particularly in emerging markets, will boost its long-term potential.

Furthermore, its biggest acquisition to date, Bucyrus, will not only enhance its product line and increase its presence in the emerging markets, but also strengthen its position as the top mining equipment manufacturer in the U.S. As a result, the company currently retains a Zacks #1 Rank on the stock, which translates to a short-term rating of Strong Buy.


 
CATERPILLAR INC ( CAT ): Free Stock Analysis Report
 
CNH GLOBAL NV ( CNH ): Free Stock Analysis Report
 
VOLVO AB ADR B ( VOLVY ): Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



This article appears in: Investing , Business , Stocks

Referenced Stocks: CAT , CNH , VOLVY

Zacks.com

Zacks.com

More from Zacks.com:

Related Videos

Stocks

Referenced

90%

Most Active by Volume

64,159,633
  • $100.86 ▼ 0.76%
63,552,623
  • $16.71 ▼ 0.18%
60,140,251
  • $42.71 ▲ 0.38%
52,385,870
  • $17.51 ▲ 5.86%
50,329,585
  • $13.75 ▲ 29.84%
43,337,551
  • $16.16 ▼ 1.40%
40,126,911
  • $3.605 ▲ 0.56%
39,836,742
  • $3.81 ▼ 2.56%
As of 9/16/2014, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com