Caterpillar Boasts Record Profits in First-Quarter 2012 as Global Demand for Mining Products Booms

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Researched by Industrial Info Resources (Sugar Land, Texas)--Heavy machinery manufacturer Caterpillar Incorporated (NYSE:CAT) (Peoria, Illinois) reported record quarterly profits in the first quarter of 2012, as strong replacement demand in the U.S. and strong global demand for mining products resulted in companywide growth, as well as higher sales volumes and improved price realization. Net profits for the quarter were reported to be $1.59 billion, a 29.47% increase from first-quarter 2011.

Total sales and revenues stood at $15.98 billion, a 23.41% increase from the same period last year. Sales grew for both new equipment and aftermarket parts, influenced by a strong demand for machine fleet upgrades to replace older equipment. Higher end-user demand boosted machinery volumes and rail-product sales, while global energy demand boosted sales of engines for petroleum applications. A strong worldwide demand for mining products was influenced by higher commodity prices. Caterpillar also benefited from its 2011 acquisition of Bucyrus International Incorporated (NASDAQ:BUCY) (South Milwaukee, Wisconsin), a global leader in the supply of mining equipment, which alone added $1 billion in sales.

However, the company saw a slowdown in growth in China and Brazil. Overall manufacturing costs increased $268 million, attributed largely to stronger volumes and capacity expansion plans.

Industrial Info is tracking $1.16 billion in active Caterpillar projects, including the $40 million construction of the Tejon Ranch Parts Distribution Center in Lebec, California. The project involves constructing a 400,000-square-foot building, with 200,000 square feet of storage space, to support regional distribution operations. The company also is spending $35 million on the Phase II expansion of a manufacturing plant in Schertz, Texas, in which a 261,000-square-foot building will be constructed to manufacture engines blocks and components for the truck, marine and electric power industries. Both projects are expected to be completed in December 2012.

"Mining has been a great business," said Mike DeWalt, the director of investor relations for Caterpillar. "Sales were up substantially in the quarter, orders were up, and lead times for large mining trucks remained extended, with most models being quoted into 2014. In addition, our Resource Industries [segment] order backlog increased during the quarter, for both legacy Cat products and new Bucyrus machines."

All of Caterpillar's major segments reported improved sales and profits for the quarter, with the Resource Industries segment showing the strongest gains:

• The Machinery and Power Systems segment reported $15.29 billion in sales, a 24.53% increase from first-quarter 2011, and $2.2 billion in profits, a 24.76% increase:
• The Construction Industries segment reported $5.06 billion in sales, a 13.22% increase from first-quarter 2011, and $616 million in profits, a 13.24% increase.
• The Resource Industries segment reported $4.78 billion in sales, compared with $2.77 billion in the same period last year, and $1.17 billion in profits, a 46.73% increase.
• The Power Systems segment reported $4.99 billion in sales, a 12.09% increase from first-quarter 2011, and $812 million in profits, a 16% increase.
• All other Machinery and Power Systems segments reported a total of $474 million in sales, a 19.52% decrease from the same period last year, and a total of $212 million in profits, an 11.02% decrease.
• The Financial Products segment reported $693 million in sales, a 3.13% increase from first-quarter 2011, and $194 million in profits, a 53.97% increase.

Despite weak construction activity in the U.S. and slowing economic activity in Brazil, China and especially Europe, Caterpillar executives are maintaining the estimated sales and revenues outlook for full-year 2012 to be between $68 billion and $72 billion, which would be the highest in the company's history. The expectations for North American growth have improved, and price realization is expected to improve 1% to 1.5%. Capital expenditures for full-year 2012 are expected to be about $4 billion, about half of which is to be invested in the U.S.

"While we've lowered 2012 expectations for China and Brazil, we've raised our forecasts for sales in North America," DeWalt said in the conference call. "Demand in the first quarter was higher than expected; dealer rental fleet size is still well below the prior peak; fleets are still much older than historic averages; and rental utilization rates have risen to about where they were at the peak of the last cycle. In short, dealers will likely continue to refresh fleets and increase fleet sizes."

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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.