Caterpillar Hits Another Revenue Record in Second-Quarter 2012, Expects to Spend $4 Billion by End of Year

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Researched by Industrial Info Resources (Sugar Land, Texas)--Heavy machinery manufacturer Caterpillar Incorporated (NYSE:CAT) (Peoria, Illinois) reported another quarter of record revenues in the second quarter of 2012, as sales, revenues and profits improved due to stronger sales volumes and price realizations, as well as contributions from recent acquisitions. Profits for the quarter were reported to be $1.7 billion, compared with $1.02 billion in second-quarter 2011.

Total sales and revenues stood at $17.37 billion, a 22.09% increase from the same period last year. The most significant regional improvement was in North America, followed closely by the Asia-Pacific region, especially Australia. Caterpillar executives noted that the U.S. housing market appears to be gradually rebounding from its lows, boosting expectations for the North American market. The second quarter saw improved construction activity and more fleet upgrades in North America, resulting in stronger sales of construction equipment. Still, construction activity remains far below peak levels.

Among the most positive factors for the company was the performance of Bucyrus International Incorporated (South Milwaukee, Wisconsin), which contributed $1.18 billion in sales. Bucyrus, a global leader in the supply of mining equipment, was acquired by Caterpillar in 2011.

Caterpillar also saw a slowdown in China, where the economy has been slackening. Overall, manufacturing costs increased $141 million, attributed largely to capacity expansion programs and higher period costs related to production volumes.

Industrial Info is tracking $1.2 billion in active projects involving Caterpillar, including the $340 million expansion of a tractor manufacturing plant in East Peoria, Illinois, and the $200 million construction of a tractor and hydraulic excavator manufacturing plant in Bogart, Georgia. The East Peoria project involves installing new equipment to manufacture large track-type tractors (or bulldozers) to double capacity and boost efficiency. The Bogart project involves constructing a 1.2 million-square-foot building and installing production equipment for a state-of-the-art, small track-type tractor and mini hydraulic excavator manufacturing plant and distribution center.

"Cost control was very good," said Mike DeWalt, the director of investor relations for Caterpillar, in a conference call. "Material costs were about flat; freight costs were not an issue; labor productivity more than offset major cost inflation; and period cost control was very good, with period costs increasing at well less than half the rate of the sales increase. All in all, a very well-executed quarter." He added that an increase in provisions for taxes resulted in $24 million less for the quarter.

All of Caterpillar's major Machinery and Power Systems businesses reported improved sales for the quarter, while the Financial Products segment only showed slight losses. All segments and businesses showed improved profits:

• The Machinery and Power Systems segment reported $16.68 billion in sales, a 23.27% increase from second-quarter 2011, and $2.5 billion in profits, a 65.63% increase:
• The Construction Industries segment reported $5.34 billion in sales, an 8.08% increase from second-quarter 2011, and $688 million in profits, a 42.74% increase.
• The Resource Industries segment reported $5.39 billion in sales, a 68.12% increase from the same period last year, and $1.43 billion in profits, compared with only $796 million in second-quarter 2011.
• The Power Systems segment reported $5.51 billion in sales, a 12.06% increase from second-quarter 2011, and $982 million in profits, a 33.42% increase.
• All other Machinery and Power Systems segments reported a total of $454 million in sales, a 4.42% decrease from the same period last year, and a total of $188 million in profits, a 54.1% increase.
• The Financial Products segment reported $690 million in sales, a 0.72% decrease from second-quarter 2011, and $184 million in profits, a 17.95% increase.

For full-year 2012, Caterpillar executives believe capital expenditures will total $4 billion, unchanged from their previous estimate, and that revenues and profits will hit yearly records. Sales revenues are expected to be between $68 billion and $70 billion, a narrowed forecast from last quarter's $68 billion to $72 billion. About $1 billion of the difference is due to a strengthening U.S. dollar.

Caterpillar executives lauded the fiscal and monetary actions being taken in the Asia-Pacific regions, Latin America and North America. They also expect China's economy to begin to rebound toward the end of 2012. The executives also noted that the recent passage of a transportation bill through the U.S. Congress will provide the company and its customers with better clarity. However, they expect average commodity prices to be lower for full-year 2012 than in 2011.

"We believe that some of the uncertainty that is facing the world economy today will be at least a little less cloudy by the time we get to the end of 2012, and as a result of numerous monetary easing actions that have been taken around the world, we're cautiously optimistic that the world economy in 2013 will be better than in 2012," DeWalt said in the conference call.

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.