Heavy industry powerhouse Caterpillar (NYSE:CAT) reports Q1 2006 earnings results on Monday. Want to know what Wall Street expects to see? Read on. Want to know what really matters? Read on a bit more.
What analysts say:
- Buy, sell, or waffle? Fifteen analysts follow Caterpillar today, which is surprising, because that's four fewer than three months ago (during which period the stock's gone nowhere but up.) Of those still watching, five rate Cat a buy, and 10 more a hold.
- Revenues. The analysts expect to see Cat's revenues rise 12% for the quarter, to $8.7 billion.
- Earnings. Meanwhile, reported profits are predicted to surge 28%, to $1.05 per share.
What management says:
In its last earnings conference call, Caterpillar hit on a subject I'd like to spend a bit of time on today. Describing the company's tremendous growth in sales and earnings over the last few years, Investor Relations Director Mike DeWalt opined as follows: "2005 sales and revenues were up 60% vs. 2003. When you consider that some parts of Caterpillar haven't grown that fast, you realize that there are areas of the company that have more than doubled over the past two years -- mining trucks, for example . We didn't have a crystal ball, and if you look back at our original outlooks for both 2004 and 2005, you'll see that we didn't anticipate that demand for our products was going to be as significantly higher -- in both years -- as it turned out to be."
What management does:
And how did things turn out? Over the last three years, Caterpillar's revenues have compounded at an annualized growth rate of 21.7%. Its net profits have compounded at 52.9%, and earnings per diluted share at an almost identical 52.1%. On the surface, these results give us one story -- the story espoused by the five analysts rating Caterpillar a buy. With the demand for certain lines of Caterpillar's products rising -- the need for mining trucks to excavate the newly profitable Canadian oil sands, for example -- Caterpillar may be able to grow at rates one would never expect to see from a "mature" company like this one.
Dig a little deeper, and you get to the second level of the story -- the one putting the caution into the 10 hold ratings attached to this stock. Simply put, Caterpillar is a mature company, and no one should expect a mature company to grow its profits at 50% per annum, year in and year out.
This Fool says:
But the story I think we should keep in mind when reviewing Caterpillar's success is the one inspired by Mr. DeWalt's admission. No one has a crystal ball -- not the analysts, not us Foolish investors, not even management of the company itself. Five years ago, Caterpillar's past-three-year compounded rates of revenue and earnings growth were both negative. Today, they're more positive than anyone would have guessed back then. Every once in a while, it's good to get a reminder like this: In investing, nothing is ever certain -- to anyone.
Competitors:
- Deere (NYSE:DE)
- Kubota (NYSE:KUB)
- CNH (NYSE:CNH)
- CIT Group (NYSE:CIT)
- Cummins (NYSE:CMI)
- DaimlerChrysler (NYSE:DCX)
Fool contributor Rich Smith does not own shares of any company named above.
