Caterpillar results were released before the bell, and it was quite a big beat, when compared to what the predictor bots had lined up. For the quarter the company earned 2.32 Dollars per share off of record revenues of 17.2 billion Dollars. Both top and bottom line was a beat. And a record, oh, we said that already. In a dire year you know, where Europe….blah, blah and so on. Caterpillar actually make an internal prediction on how they see global growth, and their estimates are for the global economic expansion to clock 3.3 percent. That is quite amusing that people who make mining and earth moving equipment making economic forecasts, but I guess they have a great sense from their order book on what the world looks like. Rather than academic types two feet deep in the snow in a little Swiss hamlet who tells us it is all finished. Because as we stumble our way through all of this (Developed world debt levels), we are seeing an improvement already.

In fact Caterpillar indicated that the US housing market is improving, at least orders for their goods are. Spend has increased nearly six percent last year from about March onwards, but in truth spend was at its lowest levels in over a decade. Amazingly, Caterpillar have a backlog of nearly half of last years revenue. For the full year revenues were 41 percent higher than the previous financial year, at just over 60 billion Dollars. Net income was just shy of 5 billion Dollars, clocking 4.928 billion Dollars. That was a massive 83 percent higher. On a per share basis, earnings were 7.40 Dollars. This crushes the 2008 record year, which was 5.66 a share. By as much as 30 percent.

Their business is a nicely spread one, with roughly one third of revenues in their construction industries business (the ones that you would be most familiar with), one third in Power Systems (diesel and natural gas generators and engines), and around one quarter in Resource Industries. I quite liked this graphic from their 2010 annual report, on what is exactly driving their business. A picture tells, you know, three paragraphs worth.

Quite simply, more people urbanising equals a greater demand for raw materials, plus greater equipment usage and also greater energy consumption. In a time of a resource boom the old saying goes, it is the folks that make the picks and shovels that make most of the money! Not too sure about that, ExxonMobil and BHP Billiton do not seem to be struggling at the moment!

What does the outlook segment say? Here goes: “The outlook for 2012 sales and revenues has increased and is expected to be in a range of $68 to $72 billion. Profit per share is expected to be about $9.25 at the middle of the sales and revenues range. The outlook includes full-year results for the two large acquisitions that we completed in 2011?Bucyrus and MWM.” Revenue could increase by as much as 20 percent, with profits more than that. The stock closed at 111.31 Dollars a share yesterday, up 2 percent.

The 52 week high is 116.55, we are not too far from that. The current yield is hardly handsome, but not nothing, a quarterly dividend of 46 cents translates to a yield of 1.65 percent. Hey, at least they pay something. The earnings multiple is 15 times historic and I guess if you take their guidance, 12 times forward. We continue to buy the stock, even at these elevated levels, the stock price does not look expensive, and the business is well positioned.

Sasha Naryshkine, Vestact

Tags: #BRICs, #Caterpillar