Thursday, January 27, 2011

CAT 4Q10 Earnings 01/27/11 - Jeremy Pellizzari

Caterpillar Inc. reported 4Q revenues of $12.8 billion, which was a 69% increase from the year before. For the fiscal year, CAT reported earnings of $42.6 billion, an increase of 31% from the prior year. The 4Q earnings showed profit nearly quadrupled year over year to $968 million, which equates to an increase of EPS from $.36 to $1.47. Caterpillar managed to beat analysts’ expectations by nearly 14% and has managed to beat earnings for eight straight quarters. Much of this can be attributed to machinery sales being up 88% and engine sales up 36%. Throughout the year, CAT raised production levels each quarter, to the point that there 4Q shipments of machinery were double that of the prior year.

Looking to the future, CAT appears to maintain strong growth into 2011 riding out the growth in developing countries. CFO Edward Rapp is quoted as saying “We’re very optimistic about what’s going on in the developing parts of the world.” The outlook for 2011 does not include two pending acquisitions of Bucyrus International Inc. and Motoren-Werke Mannheim Holding, but still forecasts earnings near $6 per share, a 45% increase from the $4.15 per share in 2010. They are forecasting sales to top $50 billion which would be a 17% increase from 2010. Some of the risks they have identified going into 2011 are rising prices of raw materials, global divergence, and central banks in developed economies tightening economic policies. In regards to raw material prices, Caterpillar reports they believe that total costs of material are expected to be “relatively flat.” They justify this with the fact that steel accounts for only 20% of material costs and the suppliers through which they buy parts have cut costs of labor by becoming more efficient. Look for Caterpillar to have a strong year in 2011 and continue to be the world’s largest manufacturer of construction and mining equipment.

Jeremy Pellizzari - Junior Analyst

No comments: