Caterpillar Inc.'s (CAT) fourth-quarter revenue and earnings soared from a year earlier, reflecting an improving global economy and increased spending on capital equipment.
The world's largest construction machinery manufacturer by sales topped analysts' expectations for the quarter and now expects 2011 earnings near $6 a share. It sees overall sales and revenue this year exceeding $50 billion. In 2010, the company earned $4.15 a share on revenue of $42.6 billion.
"As the global economy continued to improve, demand for Caterpillar products increased substantially," Chairman and Chief Executive Doug Oberhelman said of the company's fourth-quarter performance. "The outlook reflects our expectation that the world economy will continue to recover."
Caterpillar embarked on an aggressive growth strategy last year to increase its exposure to global infrastructure development and the transportation and mining sectors. The company announced the $7.6 billion acquisition of mining-equipment company Bucyrus International Inc. (BUCY) in November. Bucyrus is the largest acquisition in Caterpillar's history. In August, the company completed the purchase of train locomotive builder Electro-Motive Diesel in a move expand the company's rail repair and service business into new equipment manufacturing.
"We are absolutely thrilled with our purchase of EMD and what we're finding inside EMD," said Oberhelman during a conference all with analysts Thursday.
Improving quarterly results from several manufacturers suggest that the long-awaited upswing in spending on equipment and machinery is under way following steep reductions the past two years. Peoria, Ill.-based Caterpillar is building additional assembly plants in the U.S., China, Brazil and other growth markets to accommodate elevated demand for machinery in the next couple of years.
Caterpillar's machinery and engine sales in the fourth quarter rose 69% off the depressed levels of a year earlier to $12.1 billion. But the company's operating margin slipped to 10.2% from 11% in the third quarter, indicating to some analysts that the company's costs for parts, materials, acquisitions and expansions are weighing on profit.
"Even though there is a lot of great growth baked into 2011, I do worry a little about the profitability," said Adam Fleck, an analyst for research firm Morningstar Inc. "There are a lot of near-term costs. As all these manufacturing businesses start to pick up at the same time, it could lead to higher supplier costs and higher material costs."
Soaring steel prices, shortages of parts such as tires and inefficient assembly operations dragged down Caterpillar's profits during the last run-up in machinery demand from 2004 to 2008. While the company acknowledged that raw material prices are increasing, it said other expenses largely remain under control.
"People believe that 100% of our purchases are steel," said Mike DeWalt, investor relations director. "The vast majority of what we buy are highly-engineered components, and we don't see the kind of increases there that you do on commodities."
Caterpillar's full-time work force world-wide rose 11% last year to 104,490 people. Its U.S. employment increased 15% last year, or by about 7,500 people, to 47,319.
Overall for the fourth quarter, Caterpillar reported a profit of $968 million, or $1.47 a share, up from $232 million, or 36 cents a share, a year earlier. The prior year included 5 cents a share in charges. Total sales and revenue rose 62% to $12.81 billion. Analysts polled by Thomson Reuters expected earnings of $1.27 a share on revenue of $11.63 billion.
Caterpillar's shares were recently up 1.5% at $97.34 on the New York Stock Exchange.
--Tess Stynes contributed to this article.
Copyright © 2011 Dow Jones Newswires