) has kicked off 2012 on a promising note by posting a 29% increase
in earnings per share (
) to a record $2.37 in the first quarter, far ahead of the Zacks
Consensus Estimate of $2.13. The outperformance was driven by
growth in mining, strong replacement demand and the company's
relentless focus on cost-cutting.
Revenues soared 23% to $15.98 billion in the quarter, outpacing
the Zacks Consensus Estimate of $15.82 billion. Volumes were up for
both new equipment and aftermarket parts as well as across all
geographic regions except Latin America. Furthermore, price
realization, and the Bucyrus and Motoren-Werke Mannheim Holding
GmbH ("MWM") acquisitions also contributed to the rise.
Cost of sales increased 24% to $11.2 billion in the quarter.
Manufacturing costs upped $268 million as a result of higher period
costs related to production volume and capacity expansion programs.
Higher steel prices pushed up material costs and freight costs were
also up from the prior year.
Selling, general and administrative (SG&A) expenses
increased 22% to $1.34 billion and research and development
(R&D) expenses scaled up 12% to $587 million ascribed to higher
volume, increased costs to support product programs and wage and
benefit inflation. However, as a percent of revenues, SG&A and
R&D expenses collectively declined 50 basis points in the
Higher sales volume and improved price realization helped offset
the rise in manufacturing costs, SG&A and R&D expenses and
were instrumental in driving up the operating profit by 27% to
$2.32 billion. Acquisitions, particularly Bucyrus, added $53
million to the operating profit. Operating margin improved 30 basis
points to 14.5% in the quarter.
Machinery and Power System (M&PS) revenues surged 25% to
$15.3 billion. Construction Industries sales improved on the back
of higher sales volume in North America, particularly due to higher
replacement demand. Sales were down in China and Brazil due to the
government's tightening of economic policies in 2011. Sales
increased in Resource Industries mainly on the back of the Bucyrus
acquisition and higher volume, particularly for new equipment.
Power Systems sales increased as a result of improved sales volume
and price realization. Machinery and Power System's operating
profit jumped 25% to $2.2 billion from $1.8 billion in the
prior-year quarter, also due to higher sales volume and improved
Financial Products' revenues grew 4% to $761 million due to the
positive impact of higher average earning assets, somewhat offset
by an unfavorable impact from lower interest rates on new and
existing finance receivables. Financial Products' profit increased
to $205 million from $136 million in the first quarter of 2011. The
increase was attributed to a $36 million decline in provision
expense, an $18 million favorable impact from higher average
earning assets and a positive impact of $13 million from higher net
yield on average earning assets.
Caterpillar had cash and short-term investments of $2.8 billion
as of March 31, 2012, down from $3.0 billion as of December 31,
2011. Total debt-to-capital ratio improved to 67% as of March 31,
2012 from 69% as of December 31, 2011. The debt-to-capital ratio at
M&PS improved to 40.5% at the end of the reported quarter from
42.7% as of fiscal year-end 2011.
Total cash flow from operating activities in the quarter was
$330 million compared with $765 million in the prior year quarter.
Operating cash flow at M&PS declined to $234 million in the
first quarter of 2012 from $1.64 billion in the prior-year quarter
as a result of unfavorable changes in working capital and the
payment of short-term incentive compensation based on record
results in 2011.
Expectations for 2012
Caterpillar maintained its sales guidance in the range of $68
billion to $72 billion for 2012. The company has now factored in
higher growth in North America that is expected to mitigate slowing
sales and revenues in China and Brazil. Bucyrus and MWM sales are
expected to be around $6 billion compared with $2.6 billion in
The company has upped its profit expectation to $9.50 per share
from the prior outlook of $9.25 per share. Improved sales, price
realization, the favorable impact of costs related to short-term
employee incentive plans and benefits from acquisitions are
expected to offset increase in period manufacturing costs and
SG&A expense, and higher taxes.
Caterpillar estimates that the world economy would grow about 3%
in 2012. The U.S. economy is expected to improve in 2012, with
growth also around 3%. Eurozone economic growth is expected
to be near zero while Europe overall would be near half a
percentage point. Growth in China is estimated at 8.5% and
Japan at 2%. Economic growth in Australia is expected at 3%,
boosted by two interest rate cuts and a strong mining sector.
The guidance for 2012, if realized, would mark the highest
revenues and profit in Caterpillar's history, even ahead of last
year's ground-breaking results. Caterpillar is sitting on a record
backlog that assures a promising 2012.
Caterpillar's expansion plans of opening new facilities and
furthering existing operations, particularly in the emerging
markets, will boost its long-term potential. Furthermore, the
Bucyrus acquisition has positioned Caterpillar as the leading
global mining original equipment manufacturer. The
Caterpillar-Bucyrus combined portfolio broadens Caterpillar's
mining equipment product line, resulting in the most expansive
product offering in the mining equipment industry. Shares of
Caterpillar presently retain a Zacks #2 Rank (short-term Buy
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 one of the few leading
U.S. companies in an industry that competes globally from a
principally domestic manufacturing base. Caterpillar operates two
divisions - M&PS and Financial Products. It competes with the
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