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TheStreet Open House

Caterpillar 2Q Profit Jumps But Shares Tumble

JOSH FUNK

Continued robust demand for Caterpillar's heavy equipment boosted the company's second-quarter profits by 44 percent, but higher costs and cautious comments about China's economy sent shares sliding Friday.

The company even bumped up its sales outlook for the year. Still, cost increases â¿¿ mostly related to its recent acquisition of mining equipment maker Bucyrus â¿¿ will prevent rising sales from boosting profit more than previously expected.

Caterpillar's quarterly profits fell short of Wall Street estimates for the first time since the recession ended, and its shares tumbled as much as 10 percent in the morning before recovering in the afternoon to trade about 5 percent down.

Many investors that were very optimistic about Caterpillar appeared to pause and reassess the prospects for months ahead, said Edward Jones analyst Jeff Windau, who believes Caterpillar still has strong long-term growth potential.

"There's a lot to digest in this quarter," Windau said.

The Peoria, Ill., company said it generated $1.02 billion net income, or $1.52 per share. That's up from $707 million, or $1.09 per share, a year ago.

But the Bucyrus acquisition cut into second-quarter profit and weighed down Caterpillar's outlook. Without it, quarterly profit per share would have been $1.72.

That was still below Wall Street expectations of $1.74, according to a poll of analysts by FactSet. And Credit Suisse analyst Jamie Cook said that many investors were expecting Caterpillar to report earnings per share above $2.

Revenue grew 37 percent to $14.2 billion, easily topping Wall Street estimates.

Caterpillar predicts 2011 sales between $56 billion and $58 billion with Bucyrus. Previously, it predicted sales between $52-and-$54 billion.

However, overall sales growth that would have added 50 cents to per-share earnings this year have been offset negatively by about $700 million of costs associated with the Bucyrus deal, which were about $200 million higher than expected.

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