Caterpillar's Earnings: 3 Important Takeaways

We're now exactly halfway through earnings season, as far as the Dow Jones Industrial Average (INDEX: ^DJI  ) is concerned. Earlier today, Caterpillar (NYSE: CAT  ) reported its results for the third quarter, making it the 15th out of the index's 30 components to do so. Since Alcoa (NYSE: AA  ) unofficially kicked things off with mixed results two weeks ago, the Dow is down nearly 2%. Today, it's down 23 points, or 0.17%.

Digging into Caterpillar's earnings
By almost all accounts, the world's largest equipment manufacturer had a successful quarter. As you can see below, on a year-over-year basis, it grew revenue and earnings per share by 4.6% and 48.5%, respectively. However, while it resoundingly beat analysts' expectations in terms of EPS, it came up short in terms of sales, posting $16.45 billion compared with the consensus estimate of $16.77 billion.

According to Caterpillar's prepared remarks (link opens PDF file): "[W]e had a record third quarter, and our entire organization is focused on finishing 2012 as the best year for sales and profit in our history. Despite the turbulence in the global economy, we continue to track toward our goals on cost control, margin improvement, product quality, safety and better product availability for our customers."

Metric

Actual

Estimated

Last Year

Revenue (billions)

$16.45

$16.77

$15.72

Earnings per share

$2.54

$2.22

$1.71

Source: The Wall Street Journal; Morningstar.com.

In no particular order, here are the three most important takeaways from Caterpillar's earnings release:

1. Record earnings
Believe it or not, despite everything that's going on in the world right now -- from Europe's continuing struggles to slowing growth in Asia to the economic malaise here at home -- Caterpillar's revenue and earnings were both records for the third quarter.

The record levels were driven by strong performances across the board. Sales volume was up, merger and acquisition activity added $36 million to the top line, and financial-products revenue was up $13 million. Alternatively, negative currency effects -- which have affected companies as disparate as Intel (Nasdaq: INTC  ) , Johnson & Johnson (NYSE: JNJ  ) and Coca-Cola (NYSE: KO  ) -- shaved $247 million off total sales.

2. Geographic regions
While it may seem like things on the domestic front may never fully recover, Caterpillar's earnings tell a different story. For the quarter, the North American region was the company's fastest-growing. Sales here grew 9%. This compares favorably to sales in Asia, which grew a still-respectable 8%, and the rest of the world, where sales were effectively flat, according to the company's press release.

3. Future outlook
The biggest disappointment coming from the machinery manufacturer was its outlook going forward. For the remainder of the year, it now expects sales and revenue to be about $66 billion. The previous outlook was a range of $68 billion to $70 billion.

According to the company: "The decline in the sales and revenues outlook reflects global economic conditions that are weaker than we had previously expected. In addition, Cat dealers have lowered order rates well below end-user demand to reduce their inventories."

The Foolish bottom line
Although it's easy to get discouraged by Caterpillar's future outlook, its record third-quarter earnings are nevertheless pushing up its share price today. At present, shares in the storied company are trading higher by $0.91, or 1.1%. In addition, Caterpillar is the market share leader in an industry in which size matters, and its quality products, extensive service network, and unparalleled brand strength combine to give it solid competitive advantages. Read all about Caterpillar's strengths and weaknesses in our brand-new report. Just click here to access it now.

John Maxfield has no positions in the stocks mentioned above. The Motley Fool owns shares of Intel and Johnson & Johnson. Motley Fool newsletter services recommend Intel, Johnson & Johnson, and The Coca-Cola Company. Try any of our Foolish newsletter services free for 30 days. We Fools may not 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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