Replies to post #1649 on The Rising Influence of Rising Affluence

[DewDiligence]

CAT is perhaps the most cyclical large-cap company in the entire market, and it’s had a helluva run from the Mar 2009 low. Good luck if you decide to get in.

As you probably know, DE’s C&F segment, the only part of DE that competes directly with CAT, accounts for only 15-20% of DE’s total sales, and the rest is ag-related. Regards, Dew

[DewDiligence]

Caterpillar Says World Population Growth and Bigger Cities Will Drive Demand

[CAT’s $8-10 EPS forecast for 2012 was first made back in mid 2009 when the company was barely breaking even (#msg-40778863); at the time, the 2012 forecast seemed far-fetched, but it no longer does. See #msg-55883551 for a related story.

Although CAT is obviously a strong beneficiary of The Global Demographic Tailwind, I continue to prefer DE among companies in the heavy-machinery arena for the reasons set forth in #msg-51542061 and the prologue of #msg-52959838.]

http://finance.yahoo.com/news/Caterpillar-affirms-2011-apf-3266076736.html?x=0&.v=4

›By Josh Funk
March 23, 2011

Caterpillar affirmed its 2011 profit outlook Wednesday and offered a rosy forecast for the years ahead because growth in the world's population and expansion of its cities will create demand for its mining and construction equipment.

Company officials sounded optimistic as they met with analysts at the ConExpo-ConAgg trade show for the construction industry in Las Vegas. Caterpillar also announced Wednesday that it is considering selling part of its logistics subsidiary, so it can focus on its core business of making yellow-and-black mining and construction equipment.

"With the opportunities we see around the world, we have a very bright future," CEO Doug Oberhelman said. "We also have a strong financial position and a strategy that focuses on helping our customers win."

Oberhelman said Latin American economies are booming right now, and Asian countries like China have strong long-term growth prospects.

Steve Wunning, who oversees Caterpillar's mining equipment division, told analysts he can't think of a better business to be in right now because of the demographic trends. As population grows, more infrastructure will be needed, and as the economy improves, more natural resources will be mined.

Caterpillar officials say the key to the company's success over the next several years will be developing enough manufacturing capacity to meet demand while still controlling costs. The company has announced expansion projects at several of its U.S. plants and in China and Brazil. Plus, Caterpillar plans to build new plants in Victoria, Texas, and Winston-Salem, North Carolina.

The Peoria, Ill., based company predicts a 2011 profit of nearly $6 per share on more than $50 billion in sales.

Caterpillar officials say the company is also on track to meet its 2012 goals of profit per share between $8 and $10 on revenue between $55 billion to $60 billion [see the prologue of this post].

And those profit projections for this year and next year don't include Caterpillar's most-recently announced acquisitions of Bucyrus International, locomotive maker Electro-Motive Diesel, Inc. and German engine maker Motoren-Werke Mannheim.

Caterpillar's $7.6 billion buyout of mining equipment maker Bucyrus is expected to close in mid-2011 [#msg-56696672]. Caterpillar officials said last fall that they expected to issue up to $2 billion in stock to help finance the $92 per share purchase price.

Chief Financial Officer Ed Rapp said Wednesday that Caterpillar should now be able to significantly reduce the amount of stock it has to issue to finance the Bucyrus deal because the fourth quarter was better than expected and year-end pension adjustments were favorable.

Caterpillar also expects to take on about $1 billion debt in the Bucyrus deal, which will significantly expand its line of mining equipment.

Caterpillar also said Wednesday that it had hired Bank of America Merrill Lynch and Robert W. Baird & Co. to help it evaluate the options for its third-party logistics business. The unit was created 24 years ago to market what Caterpillar had learned in its own parts-distribution business.

Caterpillar's third-party logistics unit has operations in North America, South America, Europe and Asia, and it has about 50 customers. The unit's past clients have included Ford Motor Co., Daimler Chrysler, Harley-Davidson and Ericsson.

If Caterpillar does sell its third-party logistics unit, the company's own manufacturing logistics and parts distribution operations will not be included.

Caterpillar declined to release employment figures for its third-party logistics business, and spokesman Jim Dugan said revenue figures for the unit were not immediately available Wednesday.

Caterpillar includes the results of its logistics unit as part of what the company calls its integrated service businesses, which accounted for about 40 percent of its $42.6 billion revenue in 2010. But those integrated service businesses include aftermarket parts, Cat Financial, Progress Rail services and several other units along with logistics.

Caterpillar had net income of $2.7 billion last year as machinery sales improved thanks to strong demand in developing nations.

Caterpillar said it expects to decide what to do with its third-party logistics unit by the end of 2011.‹