Caterpillar Remains Cautious as Earnings Soar

Caterpillar Inc far exceeded analyst expectations on Monday, reporting a 44 percent quarterly earnings increase due to record revenue, and the company signaled tempered optimism in its 2012 outlook.

The Peoria, Illinois, company said it expects full-year 2011 profit and revenue to be at the top end of its previous outlook range due to strong demand. In 2012, the company expects revenue to increase 10 percent to 20 percent above the $58 billion in sales it expects this year, although it continues to make contingency plans for a potential downturn.

The world's largest heavy machinery manufacturer is one of a slate of industrial companies outpacing analyst expectations during the current earnings reporting season. Like some of its peers, the company is encouraged by the strong results even as it remains cautious about the wider economy due to mixed economic data and tightening in key growth markets, such as China.

Although there is a good deal of economic and political uncertainty in the world, we are not seeing it much in our business at this point, Caterpillar Chief Executive Doug Oberhelman said in a press release. We believe continued economic recovery, albeit a slow recovery, is the most likely scenario as we move forward.

Caterpillar's outlook indicates the company -- like many others -- is successfully coming to grips with a slower global economy, Longbow Research equity analyst Eli Lustgarten said. Caterpillar is able to succeed in the cloudy environment due to very big growth outside of the United States and what's been a very strong (machinery) replenishment rate in the U.S., he said.

The company was able to outpace analyst expectations during the third quarter due to considerably higher revenue, much of which came from the rebuilding of inventory as dealers looked to build stock. Analysts continue to express concern over the health of the so-called end users of Caterpillar products.

Caterpillar's shares were significantly higher early in Monday's session. The stock gained about 5 percent, or $4.41, to $91.77 on the New York Stock Exchange.

'EXTREME UNCERTAINTY'

Caterpillar said heavy machinery supplies would likely remain tight in 2012, and the company plans to continue increasing production levels for many of its products. We are making strategic investments in our business to position Caterpillar for continued success well beyond 2012, Oberhelman said.

In 2012, Caterpillar expects to achieve sales increases in mature markets, up from what it currently views as low levels of sales activity. Growth in emerging markets next year is expected to keep pace with the rate seen in 2011.

Caterpillar did strike a significantly cautious tone in its earnings press release, saying that, due to extreme uncertainty and risk, each of the company's businesses have prepared downside scenario plans to help the company move fast should the situation worsen.

Caterpillar's business tends to suffer dramatically during a recession, Morningstar analyst Adam Fleck said during a phone interview. He noted Caterpillar gave included similar language in disclosures leading up to the last economic crisis.

Caterpillar reported third-quarter net income attributable to common shareholders of $1.14 billion, or $1.71 per share, compared with $792 million, or $1.22 per share, a year ago.

Analysts on average had expected Caterpillar to earn $1.54 per share in the third quarter.

Sales rose 41 percent to $15.7 billion, which is a record, according to the company.

Jefferies & Co equities analyst Stephen Volkmann said Caterpillar's better-than-expected revenue growth was partially fueled by the company's move to rebuild inventories.

The company noted that operating cash flow in its Machinery and Power Systems business nearly doubled over the first three quarters compared with the same period in 2010.

Caterpillar said full-year 2011 results would come in at the highest end of its previous outlook. It now expects annual revenue of $58 billion, including its recent acquisition of Bucyrus. Its previous forecast had been a range of $56 billion to $58 billion.

Profit is now expected to be $6.75 per share for the year, compared with a prior forecast of $6.25 to $6.75. Including the impact of Bucyrus, Caterpillar expects 2011 profit to reach $7.25 per share.

The company said 2011 will be a record year if it hits its earnings and revenue expectations.

Caterpillar said it added 4,800 jobs during the quarter, including 2,000 in the United States.

(Reporting by John D. Stoll in Detroit; Editing by Lisa Von Ahn and Maureen Bavdek)