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 Caterpillar lowers its guidance on global concerns. Other Stocks in the News Starbucks Corporation Opens First Store In India, With 'Humility' Starbucks' plans in India are lagging expectations. Deutsche Bank Reiterates Buy Rating, Lowers PT on McDonald's Corporation Deutsche Bank remains bullish on McDonald's. Copyright 2012 by InvestorGuide.com, Inc. InvestorGuide has no control over the sites we link to, is not affiliated with these sites, and cannot take responsibility for their quality or suitability. The news, analysis, commentary and profile information is not meant to be comprehensive, and the data provided is not guaranteed to be accurate. WebFinance Inc., the publisher of this newsletter, is not a registered investment advisor or a broker/dealer. This is not a stock recommendation newsletter but rather a source for investment ideas, and we encourage you to fully research any company before considering investing. The opinions expressed herein are those of the author and do not necessarily represent the views of nor are they endorsed by WebFinance Inc. No employee of WebFinance has owned or currently owns any shares in the company described above. The above is neither an offer nor solicitation to buy or sell any securities. The trading of securities may not be suitable for all potential readers of this newsletter, and the purchase of stocks mentioned in this newsletter may result in the loss of some or all of any investment made. We recommend that you consult a stockbroker or financial advisor before buying or selling securities or making investment decisions. We are not responsible for claims made by advertisers and sponsors. Anyone who makes decisions based on what they read here does so at their own risk and cannot hold WebFinance Inc. (DBA InvestorGuide.com, Inc.) or its employees responsible.

Published on Oct 23, 2012
By Leo Sun
Leo Sun
Leo Sun is a freelance finance writer and position trader. He focuses on a combination of value and momentum investing, with a strong interest in the trading philosophies of Warren Buffett and Peter Lynch. Leo also has experience writing articles to help small business owners acquire loans and manage their finances. He regularly contributes to the Stock of the Day analysis.

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