Saturday, April 30, 2011

Caterpillar Inc. 1Q11 Earnings

Caterpillar Inc. released their 1Q11 earnings using a new format in which they divided their company into segments to reflect the way the company is managed. The new segments include Construction Industries, Resource Industries, Power Systems, Rail-related businesses, and an All Other Segment.

CAT reported impressive 1Q11 revenues of $12.9 billion, an increase of 57%, as well as a per share profit increase of 400% year over year to $1.84 per share. Construction Industries showed a year over year increase in sales revenue of 71%. Management see’s this increase as a reflection of the purchasing by companies and dealer rental agencies of industrial machinery, not to increase the size or age of their fleet, but to keep their current fleets from degrading. Resource Industry sales were up 84% and Power Systems sales were up 51% year over year. As well as reporting strong increases in their segments, the company realized sales growth in all four major geographical segments. This includes North America up 72%, Latin America up 90%, Europe Africa/Middle East up 67% and Asia/Pacific up 35%.

The company saw record first quarter profits up over $1 billion dollars from the first quarter a year earlier. Higher sales and price realization were the main drivers of this increase in profit, and management is very pleased with their cost control. Incremental margins rates of 28% showed strong cost control and better supplier management.

Although CAT reported strong earnings and surpassed expectations, management stressed that if the numbers seem too high, it is due to depressed levels in 2010. The company believes that construction in the U.S. is still at very depressed levels and expects that as the economy rebounds and construction rebounds, sales will continue to improve. The natural disaster in Japan had not damaged any of CAT’s plants, but hurt many of their suppliers. This has lead to a disruption in supply that has suppressed management’s increase in the 2011 outlook.

Looking forward, CAT has raised their 2011 outlook expecting sales to reach between $52 and $54 billion, compared to the prior outlook of $50 billion. They have also increased EPS outlook to between $6.25 and $6.75, up from $6 per share.

Jeremy Pellizzari, Junior Analyst

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