Thursday, April 28, 2011

Caterpillar Inc. (NYSE: CAT): Q1 Earnings Preview 2011

Caterpillar Inc. (NYSE: CAT), the world's largest maker of earthmoving equipment, is scheduled to release its first quarter earnings before the openng bell on Friday, April 29, 2011. Analysts, on average, expect he company to report earnings of 28 cents a share on revenue of $8.11 billion. In the year ago quarter, the company reported earnings of $1.08 per share on revenue of $12.92 billion.

Caterpillar Inc. manufactures and sells construction and mining equipment, diesel and natural gas engines, and industrial gas turbines worldwide.

In the preceding fourth quarter, the Peoria, Illinois-based company's net income was $968 million, or $1.47 a share, compared to $232 million, or 36 cents a share, in the year-earlier quarter. Revenue rose 62% to $12.81 billion. Analysts, on average, expected the company to earn $1.27 per share on revenue of $11.72 billion.

At its last earnings call in January, the company said that it expects sales and revenues in 2011 to exceed $50 billion and profit to be near $6.00 per share. That is an increase from sales and revenues of $42.588 billion and profit of $4.15 per share in 2010.The company also stated that the ongoing growth in developing countries, improving economies in North America and Europe, strong demand for mining products and the need for inventories will contribute to higher sales in 2011. The EPS growth is expected to be driven by higher sales volume, improvement in price realization, comparatively flat material costs, somewhat offset by unfavorable product mix, higher manufacturing costs, SG&A and R&D expense, higher taxes and bridge financing costs associated with the Bucyrus acquisition.Caterpillar expects earnings of $8 to $10 per share on $55 billion to $60 billion in revenue in 2012.

Last month, Caterpillar said that its world-wide sales of machinery surged 59 percent in the three months ended February. This compares to a 49 percent increase in sales for the three months ended January.

Companies in the farm and construction industry have been performing well recently. With the expanding markets of China, India and Latin America driving demanding for construction equipments such as cranes and positive signs out of the U.S. market, farm and construction companies such as Caterpillar Inc. could be well positioned moving forward. 

Caterpillar’s strong brand name, pricing power and global dealer network enable it to take advantage of the growing need for infrastructure development worldwide. Caterpillar’s expansion plans of opening new facilities and expanding existing operations, particularly in the emerging markets, will boost its long-term potential.

The company plans to invest $5 billion by 2015 to expand its production capacity. In Asia alone, it aims to be able to produce 180,000 pieces of heavy equipment in the region by the end of 2015, up from a capacity of about 68,000 at the end of 2010.

Among other developments, th company recently said that the disruption to its supply chain in Japan could sporadically impact production at its other facilities around the world. The company also said that while its Sagami and Akashi facilities in Japan continued to operate and produce product, the current situation in Japan was having some impact on production, which has varied day to day over the last week. The Peoria, Illinois-based company noted that its three facilities in Japan at Tokyo, Sagami and Akashi were not damaged by the earthquake and are outside of the current area declared by the Japanese government as a mandatory evacuation zone.

The company's stock currently trades at a forward P/E (fye 31-Dec-12) of 13.56 and PEG ratio (5 yr expected) of 1.19. In terms of stock performance, Caterpillar shares have gained 63 percent over the past year.

Full Disclosure: None.
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