Caterpillar’s second-quarter profit grew 44 per cent and with strong demand for its heavy equipment, the company bumped up its outlook for the entire year Friday.
But profits fell just shy of Wall Street estimates and shares tumbled six per cent in early trading on the New York Stock Exchange (NYSE:CAT).
The Peoria, Ill.-based construction and heavy equipment maker said it generated US$1.02 billion net income, or $1.52 per share. That’s up from $707 million, or $1.09 per share, a year ago.
The acquisition of mining equipment maker Bucyrus International also cut into second-quarter profit and weighed down Caterpillar’s outlook. Without it, quarterly profit per share would have been $1.72. Analysts expected $1.74 per share.
Revenue grew 37 per cent to $14.2 billion, easily topping Wall Street estimates.
Caterpillar predicts 2011 sales between $56 billion and $58 billion with Bucyrus. Previously, it predicted sales between $52 billion and $54 billion.
Caterpillar said, however, that overall sales growth that would have added 50 cents to its per-share earnings this year have been offset negatively by costs associated with the Bucyrus deal, which were higher than expected.
Caterpillar said it lost about $150 million on interest rate swap contracts it bought to make sure it would be able to secure financing for the $7.6 billion Bucyrus acquisition at low rates. And inventory costs related to the deal also hurt Caterpillar’s profit by $250 million.
But Caterpillar remains confident in the prospects for mining equipment. It predicts that mining companies will increase their capital spending by more than 50 per cent in 2011 because of the strong demand for commodities.
Costs grew 34 per cent to $12.6 billion for Caterpillar in the quarter as steel, freight and wage costs all increased.
Caterpillar’s earnings are an indicator of the health of the global economy because it is the world’s largest maker of construction and mining equipment. When the economy is growing, Caterpillar sells more of its backhoes, mining equipment and engines.
Caterpillar chairman and CEO Doug Oberhelman said the economic recovery in the United States remains weaker than expected, but the company is still predicting moderate U.S. growth, especially once the nation’s leaders agree on trade policy and the debt limit.
Even if the U.S. economy continues to muddle along, Caterpillar expects strong growth to continue in developing countries in Asia, Latin America, the Middle East and Africa. So robust sales of the company’s construction and mining equipment is expected to continue.
Oberhelman did say that there was softening of growth in China, but that dealer deliveries were up this quarter over the same period last year.
“China is doing a good job of balancing growth and inflation, and our expectations for China remain positive,” he said.
Overall, the company predicts 3.5 per cent growth in the global economy in 2011, down from 3.9 per cent last year.
Oberhelman said he believes the current lack of confidence in the U.S. business climate is the biggest impediment to a stronger recovery.
“Lack of clarity on a U.S. deficit reduction plan, trade policy, regulation, much needed tax reform and the absence of a long-term plan to improve the country’s deteriorating infrastructure do not create an environment that provides our customers with the confidence to invest,” Oberhelman said. “We’re confident that as a country we’ll eventually get it right, and we’re positioning Caterpillar to be ready when we do.”
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