Caterpillar reported solid first quarter results in late April 2012. Its operations remain a global bellwether for overall construction and industrial activity, and are quite reasonably valued right now.
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First Quarter Recap
Total reported sales jumped 23.4% to nearly $16 billion. Machinery and related sales jumped 24.5% to $15.3 billion, or the vast majority of the total top line at almost 96%. The rest consisted of revenue from helping customers and dealers finance the sale of Caterpillar's hugely expensive equipment. This revenue category rose 3% to $693 million to account for the remainder of the total.
For machinery and power related sale, North America continued to be the largest geographic sales region and reported very robust sales growth of 26% to $5.7 billion. Asia Pacific was even stronger at 33% to $3.9 billion while the European regions were surprisingly steady and grew 25% to $3.8 billion. Latin America was a laggard but still saw the top line grow 6% to $1.9 billion.
Reported profit rose 29.5% to $1.6 billion. Slightly higher shares outstanding resulted in earnings growth of 28.8% to $2.37 per diluted share. Free cash flow production fell into negative territory (negative $514 million) and was due to higher inventory and capital expenditure levels.
SEE: Earning Forecasts: A Primer
Outlook and Valuation
Analysts project full year sales growth of 17% and total sales of almost $70.4 billion. The current consensus earnings projection is $9.7 per share. For 2013, analysts see earnings growing another 19% to $11.50 per share. Based on the current share price of right around $103 per share, this represents forward P/E of nine.
The Bottom Line
Caterpillar counts as a global bellwether. Its construction equipment is sold throughout the globe and indicates the health of construction and industrial activity in every continent. The same can be said about key rivals including Deere (NYSE:DE), CNH Global (NYSE:CNH), Terex (NYSE:TEX) and AGCO (NYSE:AGCO), but all of these competitors combined just about equal Cat's annual sales levels.
Cat's P/E levels look quite reasonable given its global reach and dominance. Clearly, its operations are cyclical and very sensitive to the health of the global economy. Between 2008 and 2009, sales fell from $51.3 billion to $32.4 billion. But overall, the long-term trends should be upward, and Caterpillar should represent an appealing way to gain exposure to global economic activity.
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At the time of writing, Ryan C. Fuhrmann did not own shares in any of the companies mentioned in this article.