Caterpillar Inc. (CAT) Q1 Profit Rises, Lifts Forecast

Caterpillar Inc. (NYSE: CAT), the largest maker of construction and mining equipment, reported a 29 percent jump in its first-quarter profit that topped analysts' estimates and boosted its full-year outlook.

Caterpillar earned $1.59 billion, or $2.37 per share, lifted by U.S. builders replacing aging machinery and a boom in demand for mining equipment. It earned $1.23 billion, or $1.84 per share, a year earlier. Analysts, on average, were expecting $2.13 per share.

Revenue rose 23 percent to $15.98 billion, up from $12.95 billion a year ago but below forecasts of $16.22 billion amid weakening sales in Europe, China and Brazil, which were offset by gains in the U.S.

The Peoria, Ill.-based company, a bellwether of the global economy, raised its annual profit outlook to $9.50 a share from $9.25. The revenue outlook provided in January remains between $68 billion and $72 billion. Analysts expect a profit of $9.54 per share on revenue of $71.3 billion.

Caterpillar's order backlog continued to increase, hitting a fresh record high of $30.7 billion, up from $29.8 billion at the end of 2011.

We're seeing strong global demand for most mining products and significant growth in replacement demand for products in the United States, which more than offset slowing in China and Brazil, said Doug Oberhelman, the company's chairman and chief executive, in a statement.

The company said demand in Brazil is showing tentative signs of improvement, and expects recent, sharp interest rate cuts to reinforce that trend. Demand in China, however, remained weak after the Chinese New Year, and Caterpillar expects the overall machine industry to decline slightly in 2012.

We expect the government will continue to ease economic policies further, but not in time to support significant recovery this year, the company said.

Shares of Caterpillar fell $4.96, or 4.58 percent, to close at $103.44 a share in Wednesday's trading. So far this year, the shares have appreciated 14.2 percent in value. Caterpillar competes with CNH Global NV (NYSE: CNH), Deere & Co. (NYSE: DE), Joy Global Inc. (NYSE: JOY), Cummins Inc. (NYSE: CMI) and Astec Industries Inc. (Nasdaq: ASTE)

Replacement Needs

Equipment replacement by the construction industry in the U.S. was a big source of revenue for Caterpillar, with sales advancing 36 percent from the $1.78 billion recorded last year. U.S. construction spending was 6 percent higher in February compared with a year earlier, according to the U.S. Census Bureau.

Although weaker employment growth in March has created fears that the U.S. economy is headed for another period of slower growth, available data for the quarter seems to point to an economy that's improving. Payroll employment grew at the fastest pace since the first quarter of 2006, light vehicle sales reached a four-year high, truck freight tonnage is near a record high, and residential building permits were 28 percent higher than a year earlier.

Caterpillar said it expects the U.S. economy will improve in 2012, with growth for the year expected to be around 3 percent.

Both U.S. housing starts and permits averaged near a 700,000-unit annual rate in the first quarter, slightly above Caterpillar's previous forecast for 2012.

We anticipate banks will further ease lending standards for home mortgages, mortgage interest rates will remain attractive and the number of households will increase, the company said.

Caterpillar also lifted its forecast for U.S. housing starts to 800,000 units in 2012 as the supply of available new homes and apartments has tightened.

Mining Demand

Caterpillar's better-than-expected results were boosted by an increased in sales of mining machines.

Despite concerns about U.S. coal demand, the company's mining business continued to improve. Growth in the global economy improved demand for most commodities, and while the prices for metals and coal were down, commodity prices remained attractive for investment, which was positive for mining in most regions of the world.

Sales by the company's resources industries division, which includes Bucyrus, rose 73 percent compared with the same quarter last year. The company purchased Bucyrus International Inc. in July for $8.8 billion, adding drag lines and drills to its product line.