This Caterpillar Is Smokin'

If you're at all down in the dumps about the economy, I have a possible elixir for you: Simply print out a copy of Caterpillar's (NYSE: CAT  ) earnings release, or its conference-call transcript, and put the document under your pillow. The positive vibes that will waft up into your body as you sleep will almost certainly have a profoundly positive effect.

Let's look at what I'm referring to: For the quarter, the company's income rose by more than a third -- 34%, to be precise -- over last year's figure. At $1.11 billion, it translated to $1.74 a share, from $823 million and $1.24 per share last year. OK, we’ll be picky: But for a tax benefit in the quarter, income would have risen "only" 29% and the per-share improvement would have been 35%, rather than 40%.

But the key here is that this is a company that -- like DuPont (NYSE: DD  ) , for instance -- has been able to benefit from sustained growth in the developing world, along with its role in some pedal-to-the-metal industries. And it hasn't backed off a bit; it's kept up its pace despite the softness that you know about in North America, western Europe, and Japan.

The company hasn't merely been riding a wave of breakneck growth in certain industries or developing parts of the world. Sure, it's benefited from increasing commodities prices and frenetic activity in mining, for instance -- CEO Jim Owens specifically mentioned coal mining during his call -- but there are signs that it's being managed effectively, as well. For instance, Caterpillar's manufacturing costs were up just 1.5% in the second quarter. That's impressive, given the way inflation has been raising its ugly head.

Can this continue? Apparently it can. Management has raised its sales forecast for this year to an even $50 billion, from a $47.2 billion to $49.5 billion range. And it also nudged up its EPS guidance. Beyond that, many of Caterpillar's products are "production constrained," and, as Owen noted, "we are selling as much as we can make."

In the days and weeks ahead, I'll be awaiting the results from Caterpillar's fellow equipment maker Deere (NYSE: DE  ) , along with mining or construction companies like Brazil's Vale (NYSE: RIO  ) . I suspect that they'll point to strong demand for what they do, as well. And like Caterpillar, they may help me to sleep just a little better.  

There are more than 3,400 CAPS players who are bullish on Caterpillar. Shouldn't your voice be heard?

For related Foolishness:

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned. He does, however, welcome your questions or comments. The Fool's disclosure policy can also move earth.


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  • Report this Comment On July 24, 2008, at 4:46 PM, isivirgil wrote:

    Caterpillar is one of only a few "old" industrial USA giants that kept its direction, its quality manufacturing excellence and an affordable relationship with its union (the UAW). Along with a few others like Boeing and IBM, it represents what is best in USA manufacturing. Not like GM, Ford and a host of other USA manufacturers that lost their way.

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