Caterpillar Becomes a Butterfly

It wasn't long ago that Caterpillar (NYSE: CAT  ) , the world's biggest manufacturer of equipment used in heavy construction and other related tasks, was being rocked by the wobbly global economy. Unless its latest earnings release was full of false signals, however, the large bellwether company is steadying admirably.

For the third quarter of this year -- a time when the fate of numerous companies from a myriad of industries continued to hang in the balance -- Caterpillar saw its profit jump fully 44% to $1.14 billion, or $1.71 per share, compared with $792 million, or $1.22 a share, for the comparable quarter a year ago. Sales for the quarter increased by 41% to a record $15.72 billion, or 31% if you eliminate the effects of the acquisition of the Bucyrus mining business at the conclusion of the first week of the quarter.

The consensus estimate from the analysts who follow the company had been for per-share earnings of $1.54 on revenues of $15.04 billion. Given the differential, Caterpillar's share price increased by $4.38, or 5% to $91.77 on Monday. As you'd obviously expect, the company's strengthened performance was hardly lost on CEO Doug Oberhelman, who called it "the best quarter for sales in our history" and said "our order backlog is at an all-time high." He continued: "Excluding Bucyrus impact s, this was also our best profit quarter in history, and year to date operating profit as a percent of sales was higher than any full year in more than three decades."

The lion's share of the company's improvement resulted from Caterpillar's Machinery and Power Systems sales, which, including the Bucyrus contribution of $1.14 billion, increased by 44% to $15.02 billion year-over-year. Total profit expanded by the same percentage to $1.14 billion.

On a segment basis, sales to the construction industry increased to $4.9 billion, up $1.43 billion, or 41% from the year-ago quarter. The improvement emanated from higher sales in all geographic regions and along all major product lines. Resource industry sales jumped to $4.60 billion, up $2.34 billion, or 103%, with about half the improvement attributable to the Bucyrus acquisition. Power systems' sales climbed to $5.08 billion, or 21%, while financial products' revenues increased 3% to $757 million.

Looking ahead, during the company's call, Director of Investor Relations Mike DeWalt noted that expectations for 2011 had been raised to $58 billion in revenues and profit of $6.75 a share, up from a previous sales range of $56 billion to $58 billion and a previous profit range of $6.25 to $6.75 per share. The company currently expects 2012 revenues to increase by another 10% to 20%.

Thus far, the industrial-equipment makers that have reported -- United Technologies (NYSE: UTX  ) and General Electric (NYSE: GE  ) , for instance -- have produced solid quarters. United Technologies posted 10.5% quarterly earnings growth, while GE saw earnings rise 57% from the year-ago quarter, albeit on flat sales. Those results, along with Caterpillar's solid quarter, indicate the potential for a strengthening quarter and a group worth special attention. Analysts expect Deere (NYSE: DE  ) to show a 34% increase in earnings per share when it reports later in November.

Are you interested in keeping abreast of Caterpillar's strengthening circumstances? Why not do so by adding the company's name to your version of My Watchlist?

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Fool contributor David Lee Smith doesn't own shares in any of the companies named above. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


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