There Won't Be a Global Recession, Caterpillar Says

Global GDP forecasts from Caterpillar, IMF and Bloomberg added to this update

BOSTON (TheStreet) -- Don't worry about a global recession. Caterpillar(CAT) says it won't happen in 2012.

In an eventful week in which Apple(AAPL) surprised the world with outsized profit and sales gains, and the Federal Reserve said it would keep interest rates low for at least another three years, Caterpillar's results sneaked up on investors. The construction-equipment maker blew past earnings and revenue targets with its fourth-quarter results, raising its outlook for 2012 in the process.

"I'm surprised as well," says Oliver Pursche, president of Gary Goldberg Financial Services. Pursche manages the GMG Defensive Beta Fund(MPDAX), which counts Caterpillar as a top holding. "It's a positive surprise. We added to the position when it pulled back in the fall, but I don't think anyone can say they believed this would happen."

The best news in Caterpillar's report was the global company telling investors not to worry about another global recession, despite enduring questions over Europe's debt crisis and its effect on global growth in 2012.

"The eurozone public debt crisis has been a lingering negative, but it is unlikely to trigger a worldwide recession," Caterpillar said in its release Thursday. The company says the risk of a global recession has "diminished significantly" over the most recent quarter, although Caterpillar noted concern that central banks could slow economic growth if they raise interest rates prematurely.

Caterpillar enjoyed an improvement in sales volume in all geographic regions in nearly all of its business segments, driven by end-user demand.

"Any which way you slice it, the reality is that even if you have some softness in the economy this year and there is a slack in demand, the rate of which the world is growing, the infrastructure theme is more than alive and well in the long-run," Pursche says.

However, the company's positive outlook for economic growth may be too rosy. Caterpillar forecasts global gross domestic product (GDP) of 3.3%, which matches the International Monetary Fund's (IMF) global growth outlook. Both of those forecasts, however, appear to be very optimistic compared to other economists. According to Bloomberg, the composite forecast for global growth in 2012 is only 2.2%.

In terms of the U.S, Caterpillar's overall forecast assumes economic growth in the U.S. of at least 3% in 2012. By comparison, the average target for U.S. GDP in 2012 is only 2.3%, according to Bloomberg.

Caterpillar's report, funnily enough, was released on the same day that negotiations with creditors over Greece's debt drag on. While most market observers have feared that Greece, as well as other troubled European countries, would put a major dent in the profitability of U.S. corporations that depend on Europe for sales growth, Caterpillar is showing it is possible to still make money internationally.

"Big picture, it shows you that the perception of weakness of the world and the excessive focus on Greece isn't translated into a broader-based demand destruction and broader based lack of activity," Pursche says. "Quite frankly, when everyone was convinced in last August that everyone was going to be in a recession, the numbers didn't bear it out. Lo and behold, here we are."

However, that hasn't stopped people from poking holes in Caterpillar's results. One Twitter user, for example, questioned whether Caterpillar is "stuffing the channel," a term used when companies load up inventories at dealers to pad sales figures. General Motors(GM), for example, was criticized for this practice as recently as last year.

Caterpillar noted that at the end of 2011, overall dealer machine inventory "was near historical levels relative to selling rates." The company said it expects that in 2012 dealers will add to inventories, "but the increase should be much smaller than in 2011 and reflect higher dealer demand expectations."

Caterpillar said dealers added $2.5 billion to new machine inventories in 2011, more than doubling the 2010 total of $900 million. That said, Caterpillar notes that dealer-reported inventory in months of supply was higher but still similar to the historical average.

-- Written by Robert Holmes in Boston.

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