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Caterpillar's Earnings Show No Recession Is on the Way

Story updated with look at Caterpillar's third-quarter financials.

BOSTON ( TheStreet) -- Caterpillar's (CAT - Get Report) third-quarter earnings report is a sign the global economy won't suffer a double-dip recession.

Caterpillar, the world's largest construction- and mining-equipment maker, reported a third-quarter profit of $1.71 a share, an increase of 40% from a year earlier. Revenue jumped 41% to $15.7 billion, although the results include the company's acquisition of mining company Bucyrus International. Excluding that, revenue of $14.6 billion was an all-time record.

Most impressive in Caterpillar's results is the company's outlook for 2012, as the company said advanced orders and overall demand is very strong. Revenue should rise 10% to 20% from about $58 billion this year, the company said.

"This earnings report provides further evidence that the world is unlikely to head into a second recession and is likely to continue to show growth divergence with the growth markets leading the way," says Oliver Pursche, manager of the $20 million GMG Defensive Beta Fund (MPDAX), which counts Caterpillar as one of its largest holdings.

Though Caterpillar's forecast isn't calling for a boom in economic activity, Pursche argues that the impressive results "demonstrate that a slowdown in velocity of growth and velocity of demand -- less acceleration, but still acceleration -- should not be confused with an overall slowdown."

Caterpillar's strength internationally is one reason to be optimistic. North America revenue climbed 32% from a year earlier, while Latin America operations posted a 31% increase. The Europe, the Middle East and Africa segment saw a 51% advance, and Asia/Pacific revenue spiked 55%.

"We are defining 'growth markets' as countries such as the BRICs [Brazil, Russia, India, China], along with Turkey, Indonesia, Korea and Mexico," Pursche says. "From our perspective, CAT and other multi-nationals that have aggressively pushed and positioned themselves in these growth markets, should continue to perform well and should continue to benefit from the globalization cycle that is exemplified by the growth of a stronger middle-class in the aforementioned countries."

Despite what Caterpillar may indicate about the global economy, there is still some concern for investors in the company based on its quarterly financial results. Revenue may have hit an all-time high for Caterpillar, but the company is having a hard time turning those sales into profits.

Gross margin -- a measure of a company's profitability -- fell to 25.8% in the third quarter, the second straight quarter of declines. In the second quarter, Caterpillar said gross margin fell to 26.1% from 28.5% in the first quarter.

Another potential sign of trouble, as one Twitter user points out, is that Caterpillar's inventory is growing in excess of sales for the second quarter in a row. Inventories rose 60% to $14.4 billion in the third quarter, up from $9 billion a year ago. By comparison, revenue was up 41% from the year-ago quarter.

Still, Caterpillar shares were the bright spot on the Dow Jones Industrial Average on Monday, rising 6% to $92.70. For the year, Caterpillar shares are still down 1%.

-- Written by Robert Holmes in Boston.

>To contact the writer of this article, click here: Robert Holmes.

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Disclosure: TheStreet's editorial policy prohibits staff editors, reporters and analysts from holding positions in any individual stocks.

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