Caterpillar: So Solid, So Well Positioned

Just last week, I lauded oil-field services leader Schlumberger (NYSE: SLB  ) and mining giant Freeport-McMoRan Copper & Gold (NYSE: FCX  ) for being standout providers of meaningful information each earnings season. I was remiss in not including Caterpillar (NYSE: CAT  ) , the Peoria, Ill.-based manufacturer of much of the massive equipment used globally in construction and mining.

Indeed, it was nigh onto impossible to emerge from studying the huge company's earnings release or listening to its post-release call with analysts without obtaining at least a solid perspective on what may lie ahead for the world's economy. That's especially the case as it relates to China -- about which there's been so much gnashing of teeth and wringing of hands in recent months.

How'd the numbers stack up?
For the quarter, the company's profit reached $1.59 billion, or $2.37 a share, up fully 29% on the net-income line from $1.23 billion, or $1.84 per share, for the comparable quarter a year ago. Total revenue was up 23% to $15.98 billion, of which about $1.1 billion came from the company's earlier acquisitions of Bucyrus International, a maker of mining equipment, and engine manufacturer MWM Holding GmbH.

Since a month ago I derided the magnitude of the analysts' forecasting miss for the prior quarter, saying that they'd probably have been better off constructing small airplanes than building Caterpillar financial models, I'll dispense with a comparison to Wall Street's expectations this time.

Strength across the board
A quick glance at the company's sales by major market area is enlightening for those seeking either a better understanding of Caterpillar's prospects or the probable direction of the broader economy. For starters, sales related to construction industries were up 13%, with North America and other developed countries leading the parade, while revenues from China and Brazil flattened -- probably temporarily -- as those countries tapped their inflationary brakes.

Sales to resource industries (that's largely mining) leaped by a whopping 73%. But without Bucyrus having joined the fold, the increase would have been closer to a "paltry" 36%. Finally, based on increases in both volumes and prices, sales to power systems were up 12% year over year in the quarter.

Positive reinforcement
It's noteworthy that, as my Foolish colleague Seth Jayson told you, CNH Global (NYSE: CNH  ) , Caterpillar's closest competitor -- despite a sixfold difference between the two companies' respective market capitalizations -- also checked in with a solid quarter on Wednesday. We'll have to wait until mid-May for a quarterly indication from Deere (NYSE: DE  ) , which, while not constituting a true competitor of its Illinois neighbor, nevertheless overlaps it in some areas.

I noted above that Caterpillar provided a solid ration of economic observations during its call. Most of that commentary was rendered by Director of Investor Relations Mike DeWalt. (Companies pluck their IR people from a variety of backgrounds, such that some are more capable than others. DeWalt, in my opinion, is at the group's higher end.)

Summarizing DeWalt's observations:

  • "[I]s China down in 2012? Yes. Will it recover? In our opinion, absolutely. The long-term future for China looks very good. Do we need to be prepared for the next round of growth? You bet we do."
  • "Brazil has already begun to ease, to drive growth. They have major infrastructure developments ahead of them. Looking forward, that will be good for our business."
  • Closer to home: "Looking beyond 2012, we continue to expect economic growth in the U.S. and improvement in construction fundamentals. At some point real residential and commercial construction activity will need to improve from today's depressed levels."
  • By way of forecasting, he said, "[W]e haven't seen much of a change in the sales outlook. In terms of profit, we raised the outlook at the middle of the sales range to $9.50 a share (for 2012), and that's up from our previous outlook of $9.25." The new figure would represent a healthy 28% increase above 2011's $7.40 per share.

Also on the call, CEO Doug Oberhelman jumped in with another comment on the Chinese economy, which, as he said, was based in part on a recent trip to the country. As he predicted: "[W]e'll see an economy growing over there probably 7% to 10% in the next few years, versus what we had been seeing of 8% to 15% over the last few years. I like those numbers. We're positioned for leadership there."

The Foolish bottom line
I like those numbers as well. I also like Caterpillar, its management's approach to its business, and its global market position. If only for informational value, Caterpillar is a name I believe should be added to all individualized Foolish versions of My Watchlist.

Fool contributor David Lee Smith doesn't own shares in any of the companies mentioned in the article above. The Motley Fool owns shares of Freeport-McMoRan Copper & Gold. Motley Fool newsletter services have recommended buying shares of Schlumberger. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.


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