) has reported a record quarter both in terms of earnings per share
(EPS) and revenues. In the quarter, EPS was $2.54, a 67% increase
from $1.52 in the prior year quarter, far ahead of the Zacks
Consensus Estimate of $2.26.
Revenues soared 22% to $17.37 billion in the quarter, outpacing the
Zacks Consensus Estimate of $16.97 billion. Volumes were up for
both new equipment and aftermarket parts as well as across all
geographic regions except China and Europe.
Sales were particularly strong in North America and Asia
Pacific. Furthermore, price realization, and the Bucyrus and
Motoren-Werke Mannheim Holding GmbH ("MWM") acquisitions also
contributed to the rise.
Cost of sales increased 19% to $12.3 billion in the quarter.
Manufacturing costs upped $141 million as a result of higher period
costs related to production volume and capacity expansion programs.
Selling, general and administrative (SG&A) expenses increased
21% to $1.54 billion and research and development (R&D)
expenses scaled up 8% to $632 million ascribed to higher volume,
increased costs to support product programs partially offset by
lower incentive compensation expense. However, as a percent of
revenues, SG&A and R&D expenses collectively declined 50
basis points in the quarter.
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 63% to
$2.62 billion. Operating margin improved 380 basis points to 15.1%
in the quarter.
Machinery and Power System (M&PS) revenues surged 23% to $16.7
billion. Construction Industries sales improved
on the back of higher sales volume across all major equipment
product categories. 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 66% to $2.25 billion from $1.5 billion in
the prior-year quarter.
Financial Products' revenues remained flat at $764 million as the
positive impact of higher average earning assets were offset by an
unfavorable impact from lower interest rates. Financial Products'
profit increased to $188 million from $172 million in the second
quarter of 2011. The increase was attributed to a $24 million due
to lower claims experience at Cat Insurance and a $13 million
favorable impact from higher average earning assets.
Caterpillar had cash and short-term investments of $5.1 billion as
of June 30, 2012, down from $2.8 billion as of March 31, 2012.
Total debt-to-capital ratio remained flat at 67% as of June 30,
2012 compared with March 31, 2012. The debt-to-capital ratio at
M&PS increased marginally to 40.9% at the end of the reported
quarter from 40.5% as of the first quarter end.
Total cash flow from operating activities in the first half of
fiscal 2012 was $2 billion compared with $3.3 billion in the prior
year quarter. Operating cash flow at M&PS declined to $1.28
billion in the second quarter of 2012 from $2.47 billion in the
prior-year quarter as a result of unfavorable changes in working
Expectations for 2012
Caterpillar lowered its upper end of its previous sales guidance
range by $2 million. The company now expects sales to be in the
range of $68 to $70 billion compared with its prior guidance of $68
to $72 billion.
The company has now factored in weaker economic conditions
across most of the globe and approximately 1 billion of negative
currency impacts. The company has however upped its EPS expectation
from the previous $9.50 to $9.60 due to better operating
performance, partially offset by a higher tax rate.
Caterpillar estimates that the world economy would grow about 2.5%
in 2012. The U.S. economy is expected to improve in 2012, with
growth at a rate more than 2%. Eurozone economic growth is
expected to be negative. Growth in China is estimated at 8%
and Japan at 2%.
The guidance for 2012 even though lowered in the reported quarter,
if realized, would mark the highest revenues and profit in
Caterpillar's history, even ahead of last year's ground-breaking
results. Caterpillar plans to open new facilities and expand
existing operations, particularly in the emerging markets, which
will boost its long term potential.
Furthermore, the Bucyrus acquisition has positioned Caterpillar
as the leading global mining original equipment manufacturer.
However, a recent downward trend in sales growth, margin headwinds,
the European debt crisis and a slowing Chinese economy remain
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 likes of
CNH Global NV
). The shares of Caterpillar are currently maintaining a Zacks #3
Rank (Hold) over the short term.
CATERPILLAR INC (CAT): Free Stock Analysis
CNH GLOBAL NV (CNH): Free Stock Analysis Report
(KMTUY): ETF Research Reports
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