Caterpillar Inc.
(
CAT
) posted record EPS of $2.54 in the third quarter of 2012, a 49%
increase from $1.71 in the prior-year quarter, way ahead of the
Zacks Consensus Estimate of $2.21. EPS in the quarter included a
pre-tax gain of $273 million from the sale of a majority interest
in Caterpillar's third party logistics business.
Revenues increased 5% to $16.4 billion in the quarter, but
fell short of the Zacks Consensus Estimate of $16.7 billion.
Improvement in sales volume, favorable price realization and
positive net impact of acquisitions and divestitures were
partially offset by foreign currency translation. Sales of new
equipment increased while sales of aftermarket parts were almost
flat. Sales in North America increased 9%, and in Asia/Pacific
were up 8% while sales in EAME and Latin America were about flat.
Cost of sales increased 2% to $11.6 billion in the quarter.
Manufacturing costs upped $259 million as a result of higher
period costs related to production volume and capacity expansion
programs.
Selling, general and administrative (SG&A) expenses
increased 8% to $1.47 billion and research and development
(R&D) expenses jumped 9% to $634 million attributable to
growth-related initiatives, increased costs to support product
programs.
Higher sales volume, impact of acquisitions and divestitures
and improved price realization helped offset the rise in
manufacturing costs, SG&A and R&D expenses and were
responsible for a 48% surge in operating profit to $2.6 billion.
Operating margin improved 460 basis points to 15.8% in the
quarter.
Segment Results
Machinery and Power System (M&PS) revenues increased 5% to
$15.7 billion. Construction Industries sales were flat as higher
sales in North America and EAME were offset by declines in
Asia/Pacific and Latin America. Sales increased in Resource
Industries mainly on the back of higher volume and improved price
realization. Power Systems sales increased as a result of
improved sales volume and price realization, partially offset by
the impact of currency. Machinery and Power System's operating
profit jumped 48% to $2.48 billion from $1.68 billion in the
prior-year quarter.
Financial Products' revenues increased 3% to $776 million as
the positive impact of higher average earning assets were offset
by an unfavorable impact of lower average financing rates on new
and existing finance receivables and operating leases. Financial
Products' profit increased to $190 million from $145 million in
the third quarter of 2011. The increase was attributed to an $18
million impact from lower claims experience at Cat Insurance and
a $26 million favorable impact of higher average earning
assets.
Financial Position
Caterpillar had cash and short-term investments of $5.7
billion as of September 30, 2012, up from $5.1 billion as of June
30, 2012. Total debt-to-capital ratio improved to 64% as of
September 30, 2012 from 67% as of June 30, 2012. The
debt-to-capital ratio at M&PS decreased to 38% at the end of
the reported quarter from 40.9% as of the second quarter end.
Total cash flow from operating activities in the first nine
months of fiscal 2012 was $3.3 billion compared with $5.5 billion
in the prior-year comparable period. Operating cash flow at
M&PS declined to $994 million in the third quarter of 2012
from $2.04 billion in the prior-year quarter, due to unfavorable
changes in working capital.
Outlook
Caterpillar has lowered its sales guidance to $66 billion from
the prior guidance of $68 billion to $70 billion due to weaker
economic conditions across most of the globe. The company has
also trimmed its EPS expectation to a range of $9.00 to $9.25
from the previous $9.60. For fiscal 2013, sales are expected to
be positive 5% to negative 5% from 2012 levels.
Caterpillar estimates that the world economy would grow about
2.5% in 2012, the weakest annual growth since 2009. However, for
2013, the company is expecting slightly improved economic growth
of about 2.7%. Though modest improvement is expected in the U.S.,
China and the developing world, Europe is expected to remain
weak.
Our Take
Even though the company lowered its 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. Furthermore, the Bucyrus acquisition has positioned
Caterpillar as the leading global mining original equipment
manufacturer.
Caterpillar recently trimmed its 2015 guidance in the wake of
weaker-than-expected growth in the global economy. Factoring in
tepid economic growth through 2015 and a less likely scenario of
a worldwide recession, Caterpillar expects to generate revenues
in the range of $80 billion to $100 billion in 2015 and earnings
per share in the range of $12 to $18 per share. Caterpillar had
earlier estimated earnings between $15 and $20 per
share.
Caterpillar had been persistently adding production capacity
for many of its products. However, with the growing concerns and
uncertainty about the pace of world economic growth, short-term
economic risks in the U.S, the Euro zone debt crisis and the
slowdown in China's growth,
Caterpillar has now opted to be cautious regarding
acquisitions and investments in expansion. Production across much
of the company has been lowered, leading to temporary shutdowns
and layoffs. The company remains hopeful that construction
activity in the emerging markets will witness modest improvement.
The company plans to remain focused on its cost control measures
and continue to invest in research and development.
Caterpillar's plans to expand in the mining and China is
currently under pressure as mining companies are revisiting and
trimming their capital expenditures plans following the slowdown
in economic expansion in China, the world's largest user of coal
and metals. The recent loss of sales momentum, margin headwinds,
negative impact of the European debt crisis and a slowing Chinese
economy remain concerns. The shares of Caterpillar are currently
maintaining a Zacks #5 Rank (Strong Sell) over the short
term.
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
(
CNH
),
Komatsu Ltd.
(
KMTUY
),
Joy Global Inc
(
JOY
) and
Deere & Company
(
DE
).
CATERPILLAR INC (CAT): Free Stock Analysis
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DEERE & CO (DE): Free Stock Analysis
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