Cat earnings bulldoze past forecasts

By Penny Yi Wang

The manufacturing giant Caterpillar Inc. owns operations in more than 180 countries. (Photo by Penny Yi Wang)
Manufacturing giant Caterpillar Inc. has operations in over 180 countries. (Photo by Penny Yi Wang)

Shares of Caterpillar Inc. jumped after the manufacturing giant, helped by a surge in North American sales that more than offset a slowdown in international market, reported third-quarter earnings that dramatically surpassed Wall Street expectations.

Net income for the Peoria-based heavy equipment maker inched up less than one percent to $1.02 billion, or $1.63 per share, from $946 million, or $1.45 per share, in the year-ago quarter.

The latest earnings per share were trimmed by nine cents by a one-time restructuring cost; excluding that factor, adjusted earnings climbed to $1.72 per share, well above analysts’ $1.34 expectations.

“We’re pleased with the third-quarter profit improvement considering world economic growth remains slower than we’d like,” said Chairman and Chief Executive Officer Doug Oberhelman.

Wall Street was pleased as well: CAT shares jumped by $5.13 , or 5.4 percent, to trade in the late afternoon at $99.70. The company’s stock has been under pressure since mid-July, as investors grew more concerned about the company’s exposure to weakening overseas economies and softening demand for mining equipment.

For more than a decade, the world’s leading manufacturer has been generating a substantial portion of its overall profit from its global presence, especially in booming markets like China and the Middle East.   Those offshore markets helped Caterpillar ride out the recession that hit the U.S in 2008.

And now, given the slowdown worldwide, the company still outperformed expectations, thanks to rebounding North America sales.

Energy and transportation sales in North America climbed 33 percent to $2.54 billion, reflecting higher demand for equipment in activities like gas compression and drilling.  In Latin America, the group’s sales dropped 21 percent, while in Asia sales managed only a 2 percent increase.

The biggest impact from South America came from Brazil, explained William Blair analyst Lawrence De Maria. “A big order from the Brazilian government last year created a tough year-over-year comparison,” he wrote in a report.

De Maria said he remains confident in Brazil as a long-term market for Caterpillar.

The Chinese construction-equipment market “continued to weaken” in the past quarter, Caterpillar said, adding that officials expect the industry there “to remain challenged in the near future.”

Despite such pressures, Caterpillar raised full year earnings guidance to $6.50 per share, excluding restructuring cost, from an earlier $5.85 a share forecast.