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Cat's purring after strongest-ever quarter

WHILE it remains cautiously optimistic on growth, equipment maker Caterpillar announced the second quarter was its best ever as the global economy slowly improved.

Donna Schmidt
Cat's purring after strongest-ever quarter

For the June quarter, the company recorded a 22% year-on-year jump in revenues to a record $US17.37 million, a number well over most analysts’ estimates.

Profit totaled $1.69 billion, a 67% increase over the $1.015 billion it reported during last year’s second quarter.

Sales were particularly strong in North America and Asia Pacific. Furthermore, price realization, and the Bucyrus and Motoren-Werke Mannheim Holding GmbH ("MWM") acquisitions also contributed to the rise.

Production volume adjustments and the company’s programs to expand capacity left Cat with a cost of sales increase of 19% to $12.3 billion, while manufacturing costs went up $141 million.

The costs were offset by higher sales volumes and an improved price realization. In fact, operating profit rose to $2.62 billion during the period, a sizeable 63% spike.

“I am very pleased with Caterpillar's record-breaking performance in the second quarter,” chairman and chief executive officer Doug Oberhelman said.

“Our employees, dealers and suppliers across the globe are doing a superb job of executing our strategy. They have helped deliver the highest level of financial performance for any quarter in our history for our stockholders and outstanding value for our customers.”

The executive attributed the record-breaking results to its ever-increasing global presence as well as its product and service line that can be found in mining as well as many other major industries, and all during a continued feeling of economic instability.

“Whether you look at cost control, delivery performance, safety, quality, new product introductions or margin rates, Caterpillar's operational performance in the quarter was excellent,” he said.

“It's what drove second-quarter profit and is providing a solid foundation as we balance our positive long-term view of the world economy with the high level of uncertainty we're all seeing today.”

However, Cat’s optimistic view of the period just ended was a bit more tempered as it looked ahead.

Profit projections are up, but the company narrowed its outlook range for sales and revenues whole-year to between $68 to $70 billion with profit of about $9.60 per share assuming the middle of that range.

The figures are up from its previous outlook of $68 to $72 billion with $9.50 profit per share.

Officials said it adjusted to the high end of the outlook because of weaker economic condition, and the profit outlook improved primarily due to better operating performance.

“Caterpillar's success in 2012 is occurring despite US construction activity that remains depressed and well below the prior peak, the problems facing Eurozone economies and economic concerns in China,” Oberhelman said.

“While we're expecting a record year in 2012, we understand the world is facing economic challenges, and if it becomes necessary, we are prepared to act quickly as we did in late 2008 and 2009.”

One important point: while the executive said Cat was prepared for that, it does not “feel” the same as 2008. Housing is improving, interest rates are still falling, and banks are prepared to step in from a liquidity standpoint.

“While we will not hesitate to act if we need to, we believe that actions needed for better world economic growth for the future have already begun,” Oberhelman said.

“I am cautiously optimistic about the world economy in 2013, very positive on the long-term prospects for global growth and excited about the role Caterpillar will play in making that growth happen. After all, the road to progress...begins with a road.”

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