2011 was a big party year for bellwether Caterpillar (NYSE: CAT). From revenue touching the peak to making a historic deal, Cat did it all this year. Unfortunately, its stock performance hasn't been as bright; it's down 2% for the year.
Cat's shares maintained good strength in the first few months of the year, and touched their peak of $115 after the company recorded record first-quarter numbers. The second half of the year was tepid, with share prices slumping in October following global slowdown fears. But the stock bounced back beautifully by more than 30% within a month. So after such a solid year for the company, why is Caterpillar's stock down for the year?
Let's rewind 2011 for a look at the details.
Raking in the moola
Cat had an outstanding year when it comes to operational performance. Demand for its equipment remained robust throughout the year, taking its revenue to peaks in two quarters.
After posting staggering year-over-year top-line growth of 57% in its first quarter, Caterpillar's revenue climbed 37% in its second quarter. Its third quarter was the biggest bumper, with revenue reaching an all-time high of $15.7 billion, up a whopping 41%. As a result, Cat's backlog (a key indicator of future revenue) touched a peak, too.
The best part was how Cat kept raising its 2011 full-year earnings guidance. From a range of around $6 per share in early 2011, it came up to $6.75 per share after the third quarter.
Historic deal
Cat added the biggest feather to its cap (or should I say bought a new cap altogether) when it acquired mining equipment company Bucyrus for $8.6 billion through a mix of cash and debt. After this acquisition, Cat is now even better positioned against competitors like Joy Global (NYSE: JOY), not only because it has more products to offer, but also because it can deepen its foothold in markets like China, where Joy has significant presence.
Mining is turning out to be one of Cat's fortes. After the successful Bucyrus acquisition, Cat has planned a new factory in Thailand and higher production of large bulldozers.
Growing with the growing markets
The high-potential emerging markets caught every industry player's eye this year. Cummins (NYSE: CMI) is expanding its product offerings in places like Africa, Russia, and Turkey. In October, it also joined hands with a China-based company to build engines to tap the strong demand in Chinese markets. Truckmaker PACCAR (Nasdaq: PCAR) is investing $200 million on a huge truck-assembly facility in Brazil, and is even setting up a technical center in India. Terex (NYSE: TEX), too, is expanding in places like Russia and Brazil through joint ventures and acquisitions.
But, among all these companies, Cat has emerged as a leader when it comes to expanding in the fast-growing markets; and 2011 was witness to this. From increasing capacity to setting up several new facilities, Caterpillar had an extremely impressive lineup of investments in the developing regions in 2011.
Cat's goal of gaining a leadership position in markets like China took a big leap in 2011 when the company unveiled its aggressive expansion plans in the country in August. It announced a big R&D expansion in China through a new proving ground and wheel loader manufacturing facility. Cat also started work on a new components manufacturing facility in China, which is expected to commence production by mid-2012.
Cat also kept its focus on India this year by planning a new $150 million engine manufacturing facility as well as expanding its existing truck capacity in the country.
In October, Cat signed an agreement with power company APR Energy to develop power solutions particularly for international power projects in emerging markets.
Deepening bonds
2011 was also witness to a significant extension of the tie-up Cat has with Navistar International (NYSE: NAV). This tie-up has been a success story since 2008 when it came into force. This year, the two companies agreed to bring in some structural changes to their joint venture to create a business model that will intensify the global reach of their products. They are also in talks for a new business venture for developing new lines of trucks to be sold globally.
Final thoughts for 2011
Cat also gave back more to its shareholders in 2011. After its second quarter, Cat raised its dividend by 5% from its previous rate to $0.46 per share. Cat also took the cake by hiring at a time when most companies were laying off. It added 4,800 jobs in its last quarter alone.
Cat's full-year results should be out in a month, and the company is busy finalizing its 2012 business plans. I believe Caterpillar has positioned itself to have a great 2012, but if you'd like to take a look at the one stock that our chief investment officer picked to crush the market for all of 2012, check out our brand-new report, "The Motley Fool's Top Stock for 2012." It highlights a company that is revolutionizing commerce in Latin America. You can get instant access to the name of this company by clicking here -- it's absolutely free.
