Caterpillar Profit Beats View; Shares Surge

(Reuters) - Caterpillar Inc (CAT.N) shares jumped more than 5 percent on Thursday after it reported a stronger-than-expected quarterly profit and raised its 2014 outlook, citing strong demand from the North American energy and construction industries.

Sales to those markets offset continued weak sales of its earth-moving machines to the mining industry, a market Caterpillar bet on heavily through acquisitions in 2010 and 2011 - right before a slump in commodity prices prompted resource companies to slash their investment in new equipment.

Since then, Caterpillar has focused on cutting production costs and boosting margins, a process that has involved thousands of layoffs but permitted the Peoria, Illinois-based company to grow earnings even as sales have flat-lined.

That was the case in the most recent quarter, when the company managed to boost its net profit by more than 7 percent, on sales growth of just 1 percent.

For the third quarter ended Sept. 30, Caterpillar earned $1.1 billion, or $1.63 a share, up from $946 million, or $1.45 a share, a year earlier.

Analysts, on average, expected it to earn $1.36 a share on sales of $13.2 billion.

Excluding restructuring costs, Caterpillar said it now expects to earn $6.50 a share in 2014, against an original forecast of $5.85.

"They crushed the estimates," said Brian Langenberg, principal at the independent research firm Langenberg & Co.

Overall sales rose 1 percent to $13.54 billion, lifted by a 15 percent increase in North American sales, driven by demand for equipment and diesel and gas engines from oil and gas companies and builders.

RISKS AND A FLAT 2015

Caterpillar, which also makes diesel-electric locomotives, got a boost during the quarter as railroads raced to buy engines ahead of tough U.S. emission rules that take effect in 2015.

But those sales gains were offset by a 21 percent sales slump in Latin America, a 7 percent sales drop in most of the Asia-Pacific region, and flat sales in China, Europe, the Middle East and Africa.

Looking toward 2015, Caterpillar said there was “a reasonable likelihood that world economic growth could improve.”

But it warned a number of “significant risks” – including tensions in the former Soviet Union and the Middle East and slowing growth in China – could hurt business confidence and weigh on sales.

As a result, the company said revenue was expected to be essentially flat in 2015.

“Caterpillar is being cautiously optimistic, which is really all they can be, given all the gremlins out there,” said Lawrence De Maria, an analyst at William Blair & Co. “But even with revenue flat, they’ve shown they can deliver solid (earnings per share) growth.”

Caterpillar shares, which lagged the S&P 500 during the third quarter, were up 5.5 percent at $99.80 in afternoon trading on the New York Stock Exchange.