Caterpillar revenue misses estimates as China, Brazil sales slow

Caterpillar heavy machinery Caterpillar heavy machinery

April 25 (Bloomberg) -- Caterpillar Inc., the largest maker of construction and mining equipment, reported a gain in first- quarter revenue that missed analysts’ estimates as sales of construction equipment fell in China and Brazil.

Revenue climbed 23 percent to $16 billion, the Peoria, Illinois-based company said in a statement today. The average of 13 estimates compiled by Bloomberg was for $16.1 billion. Net income rose to $2.37 a share, beating the $2.13 average of 21 estimates. Caterpillar raised its full-year profit forecast while maintaining its projected 2012 revenue. The shares fell in pre-market trading in New York.

“They still reported a big number but lower than expected on near-term softness in China and Brazil,” Larry De Maria, a New York-based analyst for William Blair & Co. who recommends buying the shares, said in an interview. “There was no change to the topline guidance. People want to see the whole thing.”

Caterpillar said sales in developing nations this year will be lower than anticipated. China, the world’s largest user of metals and coal, in March cut its growth target to 7.5 percent for this year from 8 percent. Caterpillar’s sales of excavators there fell 51 percent in March from a year earlier, Jefferies & Co. said in an April 11 report that cited China Construction Machinery Association data.

Caterpillar fell 1.4 percent to $106.90 in New York at 8:50 a.m. before the start of regular trading.

The company maintained its full-year sales forecast of $68 billion to $72 billion. Caterpillar raised its full-year profit outlook to about $9.50 a share. That compares with the previous projection of $9.25, and the $9.57 average estimate of 22 analysts.

Process Improvement

Caterpillar’s operational execution to increase profit from new sales has improved, said Joel Levington, managing director of corporate credit at Brookfield Investment Management Inc. in New York.

“The operating leverage Caterpillar achieved was better than we expected, and demonstrates improvement in their processes, which can help the company sustain earnings momentum,” Levington said in an e-mail.

Caterpillar is selling more excavators, dozers and dump trucks as U.S. construction spending recovers and the global mining industry boosts investment to meet projected commodities demand. The volume of construction machines sold in the U.S. as replacements for older models is still as much as 60 percent below the prior peak that ran from about 2005 to 2007, De Maria said.

‘Tail Wind’

U.S. construction spending was 6 percent higher in February compared with a year earlier, U.S. Census Bureau data show. The Architecture Billings Index remained above 50 for the fifth consecutive month in March, a positive sign for non-residential construction and equipment demand in late 2012, according to Karen Ubelhart, a New York-based analyst at Bloomberg Industries.

Caterpillar expects to see a “tail wind” from U.S. and European customers replacing aging machinery, Chief Financial Ed Rapp said in a Feb. 2 interview. The company is two years into a recovery in the business cycle, he said.

The average age of the North American construction equipment rental fleet is about 52 months, close to the peak of about 53 months, Barclays Plc said in an April 16 report. An estimated 200,000 units need to be bought annually to maintain that age, Barclays said.

Caterpillar’s construction unit’s sales gained 45 percent to $19.7 billion last year, accounting for 33 percent of total revenue, according to data compiled by Bloomberg.

Mining Deals

Chief Executive Officer Doug Oberhelman has also bet on growth in mining with the $8.8 billion purchase in July of Bucyrus International Inc. that added drag lines and drills to Caterpillar’s product line. The company received Chinese approval on April 17 to buy Hong Kong-based underground coal- mining equipment maker ERA Mining Machinery Ltd. for as much as HK$6.89 billion ($890 million).

Mining capital expenditure will increase by 11 percent in the next 12 months, Citigroup Inc. said in an April 17 report that cited a survey of mining companies. The forecast from a survey in the previous quarter was for an increase of 15 percent, Citigroup said.

While expansion of metals consumption in China may slow, aluminum and copper use still will expand by 7.2 percent and 5.9 percent this year respectively, according to data compiled by Bloomberg Industries.

“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,” Caterpillar Chairman and Chief Executive Officer Doug Oberhelman said in the statement.

(Caterpillar will hold a conference call at 11 a.m. New York time. Dial +1-877-216-8554 or +1-973-528-0009 and use pass code 5621.)

Bloomberg News

Copyright 2014 Bloomberg. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.

comments powered by Disqus
Check out Futures Magazine - Polls on LockerDome on LockerDome