Earnings Preview: Caterpillar
July 21, 2008 3:38 PM ET
PITTSBURGH (AP) - Caterpillar Inc., one of the world's largest heavy
equipment makers, reports earnings for the second quarter Tuesday
before the opening bell. The following is a summary of key
developments and analyst opinion related to the period.
OVERVIEW: Machinery makers have benefited from increased global demand
despite a faltering U.S. economy and dollar. But weaker demand for
construction equipment in some markets, such as western Europe, and
the soaring costs of steel and other raw materials have posed challenges.
During the quarter, Caterpillar announced plans to spend $1 billion
over the next two years to expand five of its Illinois factories and
shift production at some plants to meet demand for machines used
mostly in mining and large infrastructure projects.
The Peoria, Ill.-based manufacturer also unveiled plans to expand in
Asia. It plans to invest $200 million over four years to boost
manufacturing in India, including the building of more off-highway
trucks used for coal and other mining jobs engines and backhoe
loaders, the country's most widely used construction machine.
Caterpillar said it expects to build a facility in China to make
hydraulic excavators.
Also during the quarter, the Defense Department awarded Caterpillar a
five-year, $397.1 million contract to supply two types of dozers with
armor kits to the Army. The contract has a five-year option, with the
work due to be completed by 2018.
Meanwhile, Caterpillar and Navistar International Corp., a maker of
diesel engines and trucks, announced plans to work jointly to produce
on-highway trucks and engine platforms. They plan to develop,
manufacture and distribute commercial trucks to select regions outside
North America. The products would include a full line of medium and
heavy-duty trucks.
BY THE NUMBERS: Analysts polled by Thomson Financial, on average,
expect earnings per share of $1.54 on revenue of $12.69 billion. In
the year-ago period, Caterpillar earned $1.24 per share on revenue of
$11.36 billion a record for the second quarter.
In the first quarter of 2008, Caterpillar's earnings rose 13 percent
to $1.45 per share, helped by stronger international sales, from $1.23
a year earlier.
ANALYST TAKE: FTN Midwest analyst Brian Rayle, who has a neutral
rating on the stock, wrote in a recent note: "We believe the company's
shares are fairly valued as weakness in several of its end markets
continue to weigh on the company's performance."
WHAT'S AHEAD: Continued weakness in the North American construction
and industrial markets, higher input costs and other factors may
dampen Caterpillar's earnings, but CEO Jim Owens said in March that
profit and revenue will climb in 2008.
In a June 13 note to clients, Longbow Research analyst Eli Lustgarten
wrote, "the proposed alliance with Navistar and the
realignment/restructuring of manufacturing will make any further
operating margin expansion at CAT difficult over the next few years."
He has a neutral rating on the stock.
"Caterpillar is uniquely positioned to service many of the components
of the global infrastructure boom now well under way," Buckingham
Research Group analyst Joel Tiss, who has an "Accumulate" rating on
Caterpillar stock, wrote in a May 19 client note. "With steel prices
rising, factories near capacity and economic growth deteriorating, we
remain concerned about their ability to recover raw material cost
increases."
