Caterpillar’s Earnings Expected To Keep Hauling In Growth

Caterpillar will deliver its release earnings Tuesday. The company is on a high after delivering record earnings in the past year and ending with the highest backlog in its history. The macroeconomic conditions coupled with good execution should see the company do well on a majority of the parameters this year and earn handsome returns for the shareholders.

Caterpillar principally competes with industrial equipment manufacturers such as CNH Global NV, Komatsu and Volvo AB. We currently have a Trefis price estimate of $108 for Caterpillar’s Stock, which is slightly below the current market price.

Good Demand in China
China’s growing economy in spite of slowing down is involved in large scale construction and mining activities. China’s engineering machinery industry is expected to register a growth of ~100% by 2015, increasing from over $73 billion in 2011 to $145 billion in 2015. This increase is being driven by government spending on affordable housing and water conservancy projects. These are, in turn, driving demand for Caterpillar’s equipment and should have paid handsome dividends for the company last quarter.

Demand from Japan on Earthquake Rehabilitation
Japan is continuing with its infrastructure rebuilding efforts after the devastating earthquake in March last year. This had resulted in high volumes of sales for the construction equipment manufacturers, climbing by almost 32% in the fourth quarter of last year, according to Komatsu’s estimates. This growth is expected to continue in the foreseeable future and contribute significantly to the company’s top-line.

Huge Backlog
The company ended the year 2011 with a backlog of $29.8 billion, the highest in its history and an increase of 57% from 2010. This backlog should help the company tide out even if there is a slowdown in growth. We expect a considerable portion of this backlog to have been captured in the company’s results in the previous quarter.


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