Caterpillar's second-quarter profit jumped 67 percent and it's optimistic about the future, but a weaker global economy may still pose challenges for the equipment maker.
Many countries in Europe are in recession or teetering near it, a pending budget crisis could send the U.S. back into recession and China's growth is slackening. A worldwide slowdown would make it harder for Caterpillar to meet its 2012 goals. Still, the company remains confident the economy will get better next year. "We're not playing for an implosion," said CEO Doug Oberhelman. "We're playing for growth."
Others were more wary. "It was a good solid quarter, but there are still questions out there from a global economic standpoint, and that causes some cautiousness," Edward Jones analyst Jeff Windau said.
Caterpillar's results are watched closely because they are considered an indicator of industrial activity and the health of the overall economy.
The Peoria, Ill., company's solid second quarter consisted of $1.7 billion in net income, or $2.54 per share, on revenue of $17.37 thanks to strong demand for construction and mining equipment. That's up from $1.02 billion, or $1.52 per share, on $14.23 billion in revenue a year ago.
Those results beat what Wall Street expected and prompted Caterpillar to boost its outlook for the year. Trading of Caterpillar's shares initially popped as much as 5 percent on the outlook before dipping into the red. Shares eventually closed up $1.17, or 1.4 percent, to $82.60.
Caterpillar believes the global economy is definitely going to be better in 2013, even if the growth is weak. "The good news is, this doesn't feel like 2008. Interest rates are low, central banks are prepared to inject more liquidity if needed, and housing is coming off lows, not a peak, and seems to be improving," said Oberhelman, the CEO.
But he said Caterpillar is prepared to cut costs if the economy does weaken significantly.
Caterpillar now expects earnings per share of $9.60 in 2012. That's up from a prediction in April of $9.50 and tops analysts' expectation of $9.54.
But the company tightened its revenue forecast for the year to between $68 billion and $70 billion from a previous prediction of between $68 billion and $72 billion. Analysts expect $69.44 billion.
Caterpillar's guidance for 2012 seems cautious, said Jefferies & Co. analyst Stephen Volkmann.
One big reason why may be China. Economic growth has slowed to a three-year low there, and Caterpillar is sitting on an expensive inventory backlog that it would like to reduce this year.
Caterpillar officials said they believe China's interest rate cuts will likely help economic growth there later this year and next year, so they're willing to carry a little more stock into 2013. That means the company will be ready to respond to an upturn.
Several other countries are trying to stimulate economic growth by cutting or keeping interest rates low. Caterpillar officials said they believe those policies will start to pay off next year.
Uncertainty about the U.S. economy and the nation's fiscal policies are another concern for Caterpillar in 2012, but company officials say America's direction will be much clearer next year following the elections.
Through the first half of 2012, Caterpillar Inc. reported $3.3 billion net income, or $4.90 per share, on revenue of $33.4 billion. That's 47 percent higher than last year's $2.2 billion net income, or $3.36 per share, on $27.2 billion revenue.
Caterpillar Inc.: www.cat.com