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Caterpillar Sees No Slowdown
In meetings with analysts, new Caterpillar (NYSE: CAT) CEO Doug Oberhelman made extraordinarily bullish comments. Not only does he not see a double-dip recession happening, he sees signs of renewed vigor stirring in the economy and robust growth for Caterpillar.
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The World Hasn't Ended According To Caterpillar
In a view counter to much of the economic and stock market gloom and doom, Oberhelman said, "We don't think the world has ended," and that the future for growth of Caterpillar and its industry is "fantastic". Oberhelman reaffirmed profit goals for the company and cited glowing year-over-year sales figures. The company also indicated it would ramp up capital investment, and in Oberhelman's words, "Play offense and win."
Caterpillar's View With Numbers
In the three-month rolling period ending July 2009, Caterpillar's total sales dropped 48 percent from the previous year. In the same three-month period just ended in July 2010, Caterpillar's sales rose 32 percent. For July, the Asia-Pacific region led growth with a 41 percent increase, though North American sales were also strong, increasing by 38 percent. Sales were strongest in the industrial and electric power segments, while petroleum edged up slightly and marine sales were weak. The company also saw a robust earnings increase in its second quarter.
Outlook Affirmed
For fiscal 2010, Caterpillar projects revenues of $39 billion to $42 billion, compared with 2009 sales of $32 billion. Earnings per share (EPS) are expected to be in the $3.15 to $3.85 range, compared to the actual EPS in 2009 of $2.18. Higher revenues, favorable material costs, margin expansion and cost cutting are expected to contribute to these results. Potential negatives will be pension expenses, increased research costs, higher taxes and an unfavorable product mix. Caterpillar has announced investments of $2.5 billion to expand plants and open new facilities, which should set the company up for further robust growth in emerging markets.
The Rest Of The Industry
So, are these shining results and optimistic view shared by the rest of the heavy farm and industrial machinery sector? While market observers largely applauded Deere's (NYSE: DE) recent earnings report, they were mixed on the outlook. Depressed construction sales were one item cited. It was also noted that Deere had a couple of very promising quarters previously.
Heavy machinery maker CNH Global (NYSE: CNH) has strong earnings estimates projected, while Kubota (NYSE: KUB) shares this outlook. Terex (NYSE: TEX) reported a loss in its Q2, though its losses narrowed and its revenue increased. The company provided a sobering outlook for the remainder of the year.
So Who's Right?
It may be a matter of whether investors want to focus on Caterpillar's glowing predictions, such as its projection of $8 to $10 EPS for fiscal 2012 with revenues of $55 billion to $60 billion. Investors may dismiss the comments as the over-enthusiastic views of a new CEO. Or they may choose to focus on Terex's glum results and downbeat forecast.
Enthusiasm and hyperbole aside, Caterpillar's views have merit. The company's views are strongly backed by its recent results and trends. It may also be true that Caterpillar is the best in breed, so Deere and the others probably won't match Caterpillar's glowing results. Even if the Caterpillar projections are scaled back, Caterpillar's views should give some weight to the argument that the economy will see better days soon. This doesn't fit the gloom-and-doom scenario ruling the Street now, but it just might be true. (For more, see The Successful Investment Journey.)
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IN PICTURES: 5 Tips To Reading The Balance Sheet
The World Hasn't Ended According To Caterpillar
In a view counter to much of the economic and stock market gloom and doom, Oberhelman said, "We don't think the world has ended," and that the future for growth of Caterpillar and its industry is "fantastic". Oberhelman reaffirmed profit goals for the company and cited glowing year-over-year sales figures. The company also indicated it would ramp up capital investment, and in Oberhelman's words, "Play offense and win."
Caterpillar's View With Numbers
In the three-month rolling period ending July 2009, Caterpillar's total sales dropped 48 percent from the previous year. In the same three-month period just ended in July 2010, Caterpillar's sales rose 32 percent. For July, the Asia-Pacific region led growth with a 41 percent increase, though North American sales were also strong, increasing by 38 percent. Sales were strongest in the industrial and electric power segments, while petroleum edged up slightly and marine sales were weak. The company also saw a robust earnings increase in its second quarter.
Outlook Affirmed
For fiscal 2010, Caterpillar projects revenues of $39 billion to $42 billion, compared with 2009 sales of $32 billion. Earnings per share (EPS) are expected to be in the $3.15 to $3.85 range, compared to the actual EPS in 2009 of $2.18. Higher revenues, favorable material costs, margin expansion and cost cutting are expected to contribute to these results. Potential negatives will be pension expenses, increased research costs, higher taxes and an unfavorable product mix. Caterpillar has announced investments of $2.5 billion to expand plants and open new facilities, which should set the company up for further robust growth in emerging markets.
So, are these shining results and optimistic view shared by the rest of the heavy farm and industrial machinery sector? While market observers largely applauded Deere's (NYSE: DE) recent earnings report, they were mixed on the outlook. Depressed construction sales were one item cited. It was also noted that Deere had a couple of very promising quarters previously.
Heavy machinery maker CNH Global (NYSE: CNH) has strong earnings estimates projected, while Kubota (NYSE: KUB) shares this outlook. Terex (NYSE: TEX) reported a loss in its Q2, though its losses narrowed and its revenue increased. The company provided a sobering outlook for the remainder of the year.
So Who's Right?
It may be a matter of whether investors want to focus on Caterpillar's glowing predictions, such as its projection of $8 to $10 EPS for fiscal 2012 with revenues of $55 billion to $60 billion. Investors may dismiss the comments as the over-enthusiastic views of a new CEO. Or they may choose to focus on Terex's glum results and downbeat forecast.
Enthusiasm and hyperbole aside, Caterpillar's views have merit. The company's views are strongly backed by its recent results and trends. It may also be true that Caterpillar is the best in breed, so Deere and the others probably won't match Caterpillar's glowing results. Even if the Caterpillar projections are scaled back, Caterpillar's views should give some weight to the argument that the economy will see better days soon. This doesn't fit the gloom-and-doom scenario ruling the Street now, but it just might be true. (For more, see The Successful Investment Journey.)
Use the Investopedia Stock Simulator to trade the stocks mentioned in this stock analysis, risk free!
by
Greg Sushinsky
Greg Sushinsky is a passionate independent investor, who has done his own research, analysis and investing for 20 years. One of his earliest investing memories was when he first saved and bought U.S. Savings Bonds with his own money as a small child. From there, he studied investing on his own and made small stock purchases as he grew as an investor.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
Sushinsky still follows the markets, studies and reads widely in financial literature, and has written over 75 articles on investing. He is also a professional editor, whose work is published extensively in large-circulation magazines, digests and across the internet. In other pursuits, Sushinsky writes fiction and has a university degree in philosophy. To see more of Sushinsky's literary work, see http://writing.gregsushinsky.com/.
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