The Global Demographic Tailwind

[DewDiligence]

Caterpillar Sets Aggressive 2012 Goals—Stock Soars Again

[The targets for 2012 were so aggressive they caught investors off guard and caused a sharp run-up in the share price on top of the run-up in July from raised 2009 guidance (#msg-39888650). The new message is that CAT thinks it will make huge sums of money in the next few years due to: i) its having wrung out manufacturing costs; ii) the likely demise of some competitors; and iii) The Global Demographic Tailwind :- ) ]

http://www.reuters.com/article/marketsNews/idINN0413357220090804

›Tue Aug 4, 2009 7:30pm EDT
By James B. Kelleher

PEORIA, Ill., Aug 4 (Reuters) - The top executive of Caterpillar Inc (CAT), the world's largest maker of earth-moving equipment, offered a cautiously upbeat assessment of the company's outlook on Tuesday, saying it would remain profitable even if the current downturn stretched into what he called a "great recession."

Speaking at a meeting for analysts and institutional investors, Jim Owens, Caterpillar's chairman and chief executive, also reiterated the company's forecast for 2009.

While acknowledging the economy was "not out of the woods yet," Owens said he was seeing encouraging signs of stability, including increased requests for quotes on new machines and engines from customers who just a few months ago were rushing to cancel orders.

"We have a long ways to go," Owens told the group of about 150 at a facility a few blocks from the company's headquarters overlooking the Illinois River. "But it's a journey and we've made some great progress."

Looking out to 2012, Owens said Caterpillar hoped to report annual earnings of $8-10 a share on sales "approaching" $60 billion by 2012 -- provided the world economy recovers from the current recession.

Caterpillar said it hopes to generate cash flow of $7 billion to $10 billion in 2012.

That was a more upbeat message than he delivered just two months ago at the company's annual shareholder meeting, when all Owens would say what that there was a good chance Caterpillar's sales would return to 2008's record level of $51 billion by 2013.

Indeed, on Tuesday, Owens drew a line in the sand, saying that, even if current conditions persisted, Caterpillar would be able to produce annual earnings of $2.50 a share going forward, although additional cost-cutting measures might be needed to defend that profitability.

That is well above the 40 cents a share to $1.50 a share the company expects to report this year after suffering its worst one-year drop in sales since the Great Depression and laying off tens of thousands of workers. Factoring out the cost of layoffs, it expects to earn $1.15 to $2.25 this year.

SHARES RISE

The upbeat presentation by Owens and other members of Caterpillar management sent the company's shares higher on the New York Stock Exchange, even though some analysts at the event called the 2012 goals as "a stretch" given continued weakness in key end markets such as construction and the enormous investment Caterpillar needs to make to expand its presence in emerging markets.

When one analyst, Eli Lustgarten of Longbow Securities, wondered if Owens, who is 63 and expected to retire in the next two years, had saddled his successor with targets impossible to meet, Owens called the 2012 goals "a lay-up" -- a common metaphor in this city, long famed for its amateur basketball teams. The term means likely to be accomplish.

In presentations by other top executives, Caterpillar laid out ambitious targets for revenue growth in emerging markets, especially China, where the company expects 2012 sales well above $4 billion by growing its six current plants to 16 and by expanding its workforce from 4,000 to 10,000.

The meeting comes just weeks after Caterpillar reported stronger-than-expected second-quarter earnings and raised its full-year forecast, thanks, in part, to strong margins in its engine unit, which makes everything from turbines used by oil and gas companies to reciprocating diesel engines used in its own machines.

Owens said Caterpillar…wanted to maintain its dividend through the current down cycle, but forecast that some competitors would be forced out of business if industry sales remained at current levels.‹