Caterpillar (CAT)
As the economy and housing market slid into a deep recession, so did the earnings from companies across the board. Businesses deeply intertwined with the success or failure of the housing market definitely had a hard time during the recession. Construction equipment maker Caterpillar Inc. was one of those companies. Now that the economy and housing market have started to make solid improvements, the company appears to be making a turnaround. Will the company’s recent results be sustainable in future quarters? What factors helped the company recover from its slump and make strides back to profitability?
Daily Chart
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Stock Analysis
Caterpillar Inc. reported a profit in the first quarter and raised its full-year sales forecast above Wall Street estimates. First-quarter net income was $233 million, or 36 cents a share, after a loss of $112 million, or 19 cents, a year earlier. Excluding a tax charge of $90 million related to the recently signed U.S. health care legislation, Caterpillar posted earnings of 50 cents a share The company now expects to earn $2.50 to $3.25 a share on revenue of $38 billion to $42 billion. In January the company forecasted a profit of about $2.50 a share on revenue of $35.6 billion to $40.5 billion. However, the company’s sales and revenue did take a slight beating. First-quarter machinery sales fell about 1.5 percent to $5.26 billion, while engine sales dropped 28 percent to $2.29 billion.
The world’s largest maker of earth-moving equipment credited robust orders from mining and energy companies as part of the reason that it posted a stronger-than-expected quarterly profit. The most important contributor to Caterpillar’s recent results was definitely the rebound in the economy. Chairman and CEO Jim Owens said, “Economic conditions are definitely improving, particularly in the world’s developing economies. Industry activity and orders are significantly higher than last year and are at record levels in some areas.” It’s not smooth sailing from here on out for Caterpillar. Due to the lingering effects of the recession, the company has been forced to continue several cost cutting strategies including job cuts, salary and hiring freeze until profits become solid again.
It is still questionable whether the company will be able to sustain its current improvements. Since a large portion of the company’s success relies on the status of the economy, the future is still foggy to say the least. One slip in the wrong direction and the company may end up back at square one. Customer demand and increasing inventory levels are still a major issue for the company. If the economy continues to rebound, Caterpillar should have no problem delivering the same or even better results during the year. The company is placing a lot of bets on status of the economy by raising its profit forecast. Hopefully things will play out in a way that helps the company meet its projections. Shares of Caterpillar are trading near the 52-week high and have climbed 26.8% in the past three months.
Other Stuff on Caterpillar
- Caterpillar VP Williams to Retire – Vice President Bob Williams will retire after more than 43 years with the company.
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