Caterpillar’s ‘best quarter’ ever defies economic slowdown fears
CHICAGO – Caterpillar Inc. reported its strongest quarterly results in at least four decades Friday, posting 38 percent higher profits as strong demand for its equipment in mining and highway construction helped overcome the impact of a U.S. housing slowdown.The heavy-equipment maker’s record sales and better-than-expected earnings showed no sign of the weakening in the global economy that some observers have been anticipating.Caterpillar raised its guidance for the full year following what CEO Jim Owens said was “the best quarter in our history,” concluding Caterpillar’s most profitable first half since 1966.The company cited particular strength in mining, energy and infrastructure development, which it expects to continue. Its executives suggested on a conference call that fears of a big setback from the weakened U.S. housing industry have been excessive, noting that more than half its housing-related sales are overseas in any case.”Housing in the U.S. is weaker, but it’s not collapsing,” Owens said. “2006, while down from 2005, should still be the third best year for housing starts in the U.S. since 1978.”Despite the upgrade and exceeding estimates, Caterpillar’s shares rose 30 cents to $69.38 in afternoon trading on the New York Stock Exchange.Analysts said the muted reaction reflected profit-taking, since the stock already had risen 20 percent since the start of the year. The company also did not give guidance on 2007, although Owens said he does not expect 2006 to be the peak for the industries it serves.”There are a lot of people out there who are saying it can’t get any better so it’s time to sell,” said Alexander Blanton of Ingalls & Snyder. “But I believe it really could.”He said Caterpillar has strengthened several parts of its businesses and will see a continuing payoff from rapid growth in China and emerging markets.Morningstar analyst Scott Burns said the Peoria-based company should benefit from strength in mining and infrastructure until at least 2008.”There seems to be no slowing this manufacturing juggernaut’s pace,” he said in a note to investors.Net income rose to $1.05 billion, or $1.52 per share, from $760 million, or $1.08 per share, in the second quarter of 2005. That was 10 cents higher than the average estimate of 12 analysts polled by Thomson Financial.Sales rose 13 percent to $10.61 billion from $9.36 billion last year and handily beat the Wall Street estimate of $9.96 billion. Sales of machinery rose 14 percent to $6.88 billion, while engine sales added 12 percent to $3.08 billion.Caterpillar said it now expects to earn between $5.25 and $5.50 per share in 2006 on sales growth of 12 percent to 15 percent. That was up about 8 percent from its previous outlook, but Wall Street’s estimates for a $5.33 per-share profit and sales of $38.84 billion already had taken much of the projected growth into account.Owens said signs point to a continuation of a Caterpillar recovery that began in mid-2003.”While it’s tough to predict the future, historically global industry recoveries have lasted six to eight years, and a variety of factors … should help sustain this recovery,” he said.Stephen Coleman, chief investment officer for St. Louis-based Daedalus Capital, said Caterpillar is simply reaping the benefits of being the world’s largest earth mover at a time of strong global development.”It’s mining, it’s energy, it’s highways and roads and bridges and dams,” said Coleman, whose firm owns about 180,000 Caterpillar shares. “There are very big global demands for what they do.”For the first half of 2006, Caterpillar had net income of $1.89 billion, or $2.72 per share, up 41 percent from $1.34 billion, or $1.89 per share, a year earlier. Revenues rose 13 percent to $20 billion from $17.7 billion.—On the Net:www.cat.com
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