Caterpillar Inc. (CAT)

Q2 2012 Earnings Call

July 25, 2012 11:00 am ET

Executives

Mike DeWalt – Director of IR

Ed Rapp – Chief Financial Officer and Corporate Services

Douglas R. Oberhelman – Chairman and Chief Executive Officer

Analysts

Jerry D. Revich – Goldman Sachs

David Raso – ISI Group

Andrew Kaplowitz – Barclays Capital

Henry Kirn – UBS Securities LLC

Robert Wertheimer – Vertical Research Partners

Seth R. Weber – RBC Capital Markets Equity Research

Ann Duignan – JPMorgan

Jamie L. Cook – Credit Suisse

Robert Mccarthy – Robert W. Baird & Co., Inc.

Presentation

Draft version. An edited version will be posted soon.

Operator

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Good morning ladies and gentlemen, and welcome to the Caterpillar Second Quarter 2012 Earnings Results Conference Call. At this time, all lines have been placed on a listen-only mode, and we will open the floor for your questions and comments following the presentation. It is now my pleasure to turn the floor over to your host Mr. Mike DeWalt. Sir, the floor is yours.

Mike DeWalt

Thank you very much and good morning everyone and welcome to our Second Quarter Earnings Call. I am Mike DeWalt, the Director of Investor Relations. And I am pleased to have Chairman and CEO, Dough Oberhelman and Group President and CFO, Ed Rapp with me on the call today.

Now, this call is copyrighted by Caterpillar Inc., and any use, or recording, or transmission of any portion of this call without the expressed written consent of Caterpillar, is strictly prohibited. If you would like a copy of today's call transcript, we'll be posting it in the Investor section of our Caterpillar.com website, and it'll be in the section labeled 'Results Webcast.'

This morning, we'll be discussing forward-looking information that involves risks, and uncertainties and assumptions that could cause our actual results to differ materially from the forward-looking information. The discussion of some of those factors that, individually or in the aggregate, could make actual results differ materially from our projections, that can be found in our cautionary statements under Item 1-A, Risk Factors, of our Form 10-K filed with the SEC back on February 21st of this year, and also in the forward-looking statements language in today's release.

In addition, a reconciliation of non-GAAP measures can also be found in this morning’s financial release, and that will again be posted on our website at Caterpillar.com.

Okay. To start-off this morning, I'll do a few bullet points that summarize this morning’s release. It was an all time record sales quarter, in fact the best of the 87-year history of Caterpillar. And up 22% from the second quarter last year. A little over 12% of that was organic growth, and a little 10% from our acquisitions.

Sales and revenues rose about 9% sequentially from the first to the second quarters. It was a great quarter for profit, and also an all-time record at $2.54 a share, and operating profit was over 15% in sales and revenues. We had very good incremental operating profit pull through at 44% excluding the impact of our acquisitions.

We did however make a downward revision of $2 billion to the top end of our sales and revenues outlook range. About a $1 billion was a result of negative currency translation and about a $1 billion because of weaker world economic growth than we previously expected. We did not change the bottom end of the range, so that means the sales and revenues at the midpoint are down about a $1 billion. And we increased our full year 2012 profit outlook from $9.50 to $9.60 at the middle of the sales and revenues range.

Okay, those were the high level points, I’ll add a little more color then Doug and Ed and I will take your questions and I’ll start with sales. Again, sales and revenues up 22%, excluding Bucyrus and MWM acquisitions, which we didn’t own last year. Organic growth, again a little more than 12%. The largest increase was in our Resource Industries segment, which is primarily mining. Sales were up 68% from a year ago, about 37% from the acquisition of Bucyrus and about 31% organic growth. Sales were up in all geographic regions both with and without Bucyrus.

Our Power System segment was up 12% and that was 8% organic growth and about 4% from our acquisition of MWM. The strongest growth was in North America and the strongest industries were petroleum and rail. Our Construction Industries segment was up 8% and that increase was essentially all volume with negative currency impacts about offsetting positive price realization. Construction sales were up in North America, about flat in Europe, Africa, Middle East and that’s where most of the negative currency impacts were. Latin America was down 3% and Asia Pacific was off a 11%. And of that 11% decline in Asia-Pacific, more than all of that was China.

Speaking of China, over the past quarter, it’s been very topical; what’s happening there, what are we doing about it, and when do we think it will get better? And with most of the sales in China relating to construction, this is a good place to address it. So, in terms of what’s happening there, the construction equipment industry remains very weak and it really hasn’t shown much in the way of signs of improvement yet. In addition to the weak demand, there is still quite a bit of inventory available on the ground in China.

Now, while the industry is still pretty weak, it did turned out at about this time last year. So we are at about the point where the comparables are starting to get easier. So, on a year-over-year basis, the numbers will likely start looking better than the first half of 2012, even though the industry isn’t seeing much improvement yet.

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