Caterpillar’s Earnings Expected To Keep Hauling In Growth

Caterpillar (NYSE:CAT) will deliver its first quarter earnings of the present fiscal year on 24 April, 2012. The company is on a high after delivering record earnings in the past year and ending with the highest backlog in its history. The suitable macroeconomic conditions coupled with good execution should see the company do well on majority of the parameters this year and earn handsome returns for the shareholders.

Caterpillar principally competes with other industrial equipment manufacturers like CNH Global NV (NYSE:CNH), Komatsu (KMTUY.PK) and Volvo AB (VOLVY.PK). We currently have a Trefis price estimate of $108 for Caterpillar’s Stock, which is slightly below the current market price.

See our full analysis for Caterpillar

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 in the last quarter.

Demand from Japan on Earthquake Rehabilitation

Japan is continuing with its infrastructure rebuilding efforts after the devastating earthquake which happened 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 estimates of Komatsu. 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 their is a slow down in its growth. We feel a considerable portion of this backlog would have have been captured in the company’s results in the previous quarter.

Increasing Capital Expenditure

The company has been making large capital expenditures to erect new manufacturing and research facilities. It hopes to be able to cater to the increased demand by increasing capacity through these facilities.

Caterpillar has made investments in China in the the past year by opening a research facility in Wuxi, and constructing an equipment testing ground and a production facility for wheel loaders in the country. In India, the company has recently launched a new backhoe loader manufacturing facility near Chennai. In many other countries also, Caterpillar has either opened new plants or expanding its existing plants to increase capacity. Those facilities which have started production in the last quarter should have helped the company to boost its sales.

Understand How a Company’s Products Impact its Stock Price at Trefis