Caterpillar (CAT) Tops Expectations But Lowers 2013 Guidance
Industrial equipment manufacturer Caterpillar (CAT: Charts, News) posted strong earnings for its third quarter, beating analyst expectations on the bottom line but slightly missing on the top line. Caterpillar, which specializes in tractors, excavators and other equipment, is widely considered a bellwether stock for the global economy, due to its widespread presence across multiple industries.
For its third quarter, Caterpillar earned $2.54 per share, a 49% surge in profit from the prior year quarter, which beat the consensus estimate of $2.21 per share by a wide margin. Earnings this quarter included a pre-tax gain of $273 million from the sale of the majority of Caterpillar's third party logistics business. Revenue increased 5% to $16.4 billion, but missed the consensus of $16.7 billion. Daily Chart
Caterpillar attributed its robust earnings to improved sales volume and earnings accretive acquisitions. Sales in North America rose 9%, while its Asia/Pacific region posted 8% growth. Sales in Latin America and the EMEA (Europe, Africa and Middle East) region remained roughly flat. Some of these gains were offset by the unfavorable currency impact of a strong U.S. dollar, but were strong enough to balance out rising costs during the quarter. Expenses increased across the board - cost of sales rose 2% to $11.6 billion as manufacturing costs increased by $259 million. Selling, general and administrative expenses jumped 8% to $1.47 billion, while research & development costs rose 9% to $634 million. Despite these increased costs, operating margin increased 460 basis points to 15.8%. Caterpillar operates in two primary business segments - Machinery and Power Systems (M&PS) and Financial Products. Operating profit at Machinery and Power Systems, its main segment, increased 48% to $2.48 billion on a 5% increase in revenue to $15.7 billion. Its equipment sales to resource industries were notably higher than its sales to construction industries, reflecting a healthy demand for natural resources but a shakier demand for homes and buildings in the global market. Caterpillar's Financial Products, which includes its insurance business, posted a profit of $190 million, an increase from $145 million a year earlier. It posted a 3% increase in revenue to $776 million. Looking forward, Caterpillar lowered its guidance for fiscal 2013 for both EPS and revenue, citing uncertain macroeconomic problems across most major markets. For next year, Caterpillar expects to earn between $9.00 and $9.25 per share on revenue of $66 billion, down from its prior expectation for earnings of $9.60 per share on revenue between $68 billion to $70 billion. Caterpillar expects the world's economy to grow at 2.5% in 2012, with slightly better growth of 2.7% in 2013. The company expects the U.S., China, and the emerging markets to modestly improve, although Europe is expected to remain its weakest link. Despite Caterpillar's lukewarm expectations for 2012, analysts note that even if it meets its lowered guidance, it would be the highest earnings per share and revenue ever posted in the company's history. Caterpillar's acquisition of Bucyrus has also made the company the largest name in mining equipment, which is expected to aid in its plans to expand into China - the world's largest market for coal and metals - if Chinese growth can stabilize. Shares of Caterpillar trade at 8.5 times forward earnings with a 5-year PEG ratio of 0.66. The stock pays a quarterly dividend of 52 cents per share - a 2.45% yield at current prices. Other News About CAT Caterpillar Expects Slower Sales Growth in 2013
Caterpillar sees challenges in the global economy ahead. Caterpillar Growth Is Seen Slowing as World Expansion Dims
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Published on Oct 23, 2012
By Leo Sun