B)Caterpillar CC Notes and other
Rated a BUY with stop loss at $34.
Jim Anderson – Dir investor Relations
Linda Peters – CFO
- 5.11B for q
- 0.76 EPS for q
- 11% increase in financial products
- Engine sales down in all regions except asia
- Demand for power units remain strong
- Inventory down 125M in US
- Outside US inventories also down
- Profit increased due to increased volume
- Currency translation impacted 2 cents for the q.
- SGA was flat y2y
- NA rental fleet 64% run rate same as y2y
- Dealer rental up 9% y2y
- Seeing Cat rental stores up 45%, Added 60 stores and 295 total.
- 110 stores internationally
- NA used equipment prices strong but trending down as economy slows
- Acquired Pioneer Equipment – Foresty Equipment
- Announced a global mining division formation
- Engine business – truck engine down 17% y2y, truck build rate will drop further then level out and go up due to interest rates dropping and lower fuel cost
- Electric power business up 20% y2y, distributed generation growing faster market
- CAT elec rental grew 20%
- We expect 20% y2y growth in electric power for five years. Increased in electricity, shortfall in electri, and more desire for efficient electric.
- Petroleum demand picking up and will grow this year.
- Growth will be flat in first half and pick up later. Profit will drop 5-10%, due to global factors, unfavorable tax rate, and slowing NA sales
- SGA 11.5-12% target
- R&D 3-4%
- 32% tax rate
- 1.05B in capex for 2001
- Dealer inventory down overall. 2001 should decrease 300M worldwide
- The economic was challenging, US slowdown, instability in Asia, still made 1B in 2000
- Q&A
- USBW – Strat investments?
- A: 6 sigma initiative, e-business, supply chain management, trying to reduce long term cost structure, will see an increase in SGA due to these.
- SSB – 2001 guidance 2.70-2.85 EPS, maybe some upside due to pension and euro
- A: Currency was unfavorable in 2000 and probably unfavorable this year, pension will have no upside. Be minor if at all. Maybe about 30 cents to year number.
- 125M increase in SGA this year?
- A: probably true going from 11.1% to 11.5-12.0%. We knew we had to spend money upfront to reduce cost structure in the long run.
- CSFB – Machinery and engine profit in fourth quarter, profit doubled y2y?
- A: It doubled due to volume and cost reductions on the material purchase side. We expect NA to decline and that hurts us since NA has higher margin.
- Engine profitability was impressive considering sector collapse, are we seeing margin gains?
- A: Heavy duty trucks was half y2y, 150K units for 2000. It might drop to 125K rate and then build up to 175K at the last half. Projecting less than 150K for 2001. It will hurt us in total operating margin, but offset some by power generation and oil/gas business.
- EM – Retail sales up 2-7% in total, what won’t it increase for 2001?
- We think down in NA due to slowing economy, and up outside in US. Net will be up slightly.
- Interest rates declining, so should be up in NA?
- It takes 6-9 months for interest rates to play through for us. It will be late in the year before we see the effect.
- Won’t customer be affected in replacement decision this year?
- A: It takes several months. A lot of concern from contractors for economic condition in 2001. Business confidence need to improve and we haven’t seen it. Will see NA decline.
- Currency hit EPS 15 cents?
- A: Yes. Bulk of the number was currency.
- MR – capex up 200M?
- A: No adjustment for software. It goes from other assets property & plant.
- Profit down 5-10%?
- A: Yes. This is an EPS number and will repurchase share. Third year of five year plan to purchase shares. Repurchased over 10M shares in 2001
- GS – rent to rent free for 2001?
- A: Not specific forecast this, but it has been dropping. Probably flat to down for 2001.
- Rental strategy?
- A: As we evaluate the distribution strategy, we are doing the best for our customers.
- SSR – why profits down 5-10% for 2001?
- A: Tax adjustment in 2000 was 11 cents. Growth in SGA will hit it. We anticipate taking additional cost reductions. (analyst is very sarcastic). No going in more detail.
- Will your senior management listen to the CC and understand how we feel?
- A: Yes.
- GS – seeing receivable in financial?
- A: It was growth in portfolio. We see it growing at strong rate.
- Inventory was suppose to be down 300M?
- A: Yes, NA was 50M short in sales.
- LM – Bearish in area that should be bullish and vice versa, what’s up?
- A: NA is slowing. We need to see improvement in the US market regardless of fed action. Contractors must be confident before they will buy.
- Dealers in driver seats?
- A: 3.0 months of supply. Should get in down 2.6 in NA. Dealers and CAT are partners to improve lead times to reduce inventory since it is not a paying asset for the dealers.
- Investco – Said sales declining, how going to reduce inventory?
- A: Will follow economic situation. Only in NA is retail sales going down. As we move beyond 2001, the inventory will be based on 2002. Seasonally the inventory increase the first half of the year.
- Cash flow – where is software spending since?
- A: Other assets. Not sure where it is in the proxy. Other net line. Less than 100-200M this year, will increase it this year.
- Ramping spending to reduce cost over 5 years. Only 5-7% cost reduction. Isn’t there more that can be done. Seems like keeps up with inflation.
- A: It is a billion plus. Will be up more than 5-7%. We have been offseting inflation and took 100M in costs out.
- ABB – Strat investments – earning would be up if not for SG&A? Reducing headcount? DCX relationship?
- A: DCX not finalize until q2 of this year. Joint venture in medium duty fuel engines. Six sigma initiative will require 1000 people working on this. They will reduce cost and improve quality. These employment is not additive. No total reductions.
- Why will earning decline if improved mix?
- A: Downturn in NA, absence of tax adjustment and 6 sigma initiative.
- INGB – Less discounting improved margin yet pricing remain competative?
- A: We see competative pricing throughout world. Nominal price increase.
End of Q&A.
Caterpillar Inc. operates in three principal business segments: Machinery, Engines and Financial Products. The Company's products are sold primarily under the names Caterpillar, Cat, Solar, Barber-Greene, MaK, Perkins, F.G. Wilson and Olympian. The Company's machinery includes construction, mining, agricultural and forestry machinery. Caterpillar designs, manufactures and markets engines for the Caterpillar Machinery division, on-highway trucks and locomotives; marine, petroleum, construction, industrial, agricultural and other applications; electric power generation systems; and related parts. The Company provides financing to customers and dealers for the purchase and lease of Caterpillar and non-competitive related equipment, as well as some financing for Caterpillar sales to dealers
Insider: 13% · Over the last 6 months:
· 2 insider buys; 6,000 shares · Institutional: 64% (74% of float)
(1,025 institutions) · Net Inst. Buying: 10.2M shares (+4.43%)
(prior quarter to latest quarter)
52-Week Low on 29-Sep-2000 $29.00
Recent Price $42.68
52-Week High on 4-Jan-2001 $49.625
Market Capitalization $14.7B
Shares Outstanding 343.8M
Float 299.1M
Price/Book (mrq) 2.62
Price/Earnings (ttm) 14.14
Price/Sales (ttm) 0.74
Annual Dividend (indicated) $1.36
Dividend Yield 3.19%
EBITDA (ttm) $2.42B
Income available to common (ttm) $1.05B
Debt/Equity (mrq) 2.69
Total Cash (mrq) $334.0M
Short Interest As of 8-Feb-2001 Shares Short 3.54M Percent of Float 1.2% Shares Short
(Prior Month) 5.24M
CAT has made its numbers for at least five straight quarters.
20-Feb-01 Caterpillar (CAT) 43.30 - 0.82: Bear Stearns downgrades to ATTRACTIVE from BUY. Analyst cuts EPS estimates to $2.90 this year from $3.00 and introduces a 2002 estimate of $3.70, or 30 cents lower than originally intended. GE (GE) announced last Friday that it intended to aggressively target CAT's Solar division dominance of the <10 MW oil and gas engine market through a series of new product introductions slated for this year and next. Last week's announced truck engine alliance between PACCAR (PCAR) and Cummins (CUM) could also pressure CAT in an important market where it has been taking sizeable share in recent years.
18-Jan-01 09:34 ET Caterpillar (CAT) 45: Issue indicated to open between $39-$41 after warning of flat 2001 revenues.
22-Nov-00 08:11 ET Caterpillar (CAT) 38 1/4: Enters 50/50 global alliance with DaimlerChrysler AG (DCX) to develop medium-duty engines, fuel systems and other powertrain components for third-party customers. CAT expects deal to be immediately accretive and to appreciably increase company's profit per share over the next several years.
Note: MOT uses Six sigma and some chemical plants I been in. Not sure I buy it.
Summary
Looks tempting but still up 30% since Oct. lows. An interesting way to play the energy sector. Also inventory reduction is a change from listening to too many CC in tech. I’ve been in the Montgomery plant. The Dekalb plant seems to sit on inventory. The strategy of targeting the rental one is intriguing since there are several rental houses making a fortune. CAT would be the first big player to compete ala Walmart and the local retail store. Will sleep on it. The Bear Stearn dip is really an opportunity to buy and threats often do not materialize as planned. Value chains have to be formed and CAT has them.
Jack
