Caterpillar Inc. reported record first-quarter profit per share of $1.23, a $0.03 per share improvement from the first quarter of 2006. These results came despite severe weakness in two important North American industries. Sales and revenues of $10.016 billion were also a first-quarter record and were up 7 percent from $9.392 billion in last year’s first quarter.
“Despite major headwinds in North America related to housing and the sharp drop in demand for on-highway truck engines, Team Caterpillar stepped up to deliver a solid first quarter,” said Chairman and Chief Executive Officer Jim Owens. “Our global reach, the breadth of our product line, the wide reach of the industries we serve and the strength of our diversified service businesses all contributed to our success in the first quarter. While we expected a sales decline in on-highway truck engines and U.S. housing-related markets, the continued strength in most of the other industries we serve and exceptional growth outside North America helped us deliver good results in a tough quarter.”
Sales and revenues of $10.016 billion were up $624 million, or 7 percent, compared with $9.392 billion in the first quarter of 2006. The increase was a result of:
- $896 million improvement in sales volume outside North America
- $389 million of sales from Progress Rail, which was acquired in June of 2006
- $184 million of higher sales related to currency effects
- $105 million of improved price realization, despite an unfavorable geographic sales mix
- $46 million of additional Financial Products revenues.
The increase was partially offset by a $996 million decline in sales volume in North America, which was largely a result of the following three factors:
- Dealer Machine Inventories: North American dealers added about $600 million to inventory during the first quarter of 2006 and reduced inventory slightly in the first quarter of 2007. While dealer inventories usually increase during the first quarter, the improvement this year was a joint effort with dealers and is consistent with our goal of improving velocity throughout the value chain.
- On-highway truck: a sharp drop in demand for on-highway truck engines.
- Weak construction activity in North America: U.S. housing was particularly weak.
Profit of $816 million was down $24 million from the first quarter of 2006. Higher core operating costs and a higher tax rate more than offset the favorable effects of improved price realization, a $46 million gain on the sale of a security and the addition of Progress Rail.
Profit per share increased $0.03—from $1.20 per share in the first quarter of 2006 to $1.23. The improvement in profit per share was a result of strong cash flow over the past year that was used for stock repurchases, which reduced average diluted share count by 34 million from the first quarter 2006.
“Our focus in 2007 is on execution in the areas of safety, quality and velocity,” commented Owens. “Throughout the company, we are using 6 Sigma with the Cat Production System to improve safety and quality, add capacity and improve cost management.”
Outlook
We have increased the 2007 outlook for sales and revenues and profit per share. We expect full-year sales and revenues in a range of $42 to $44 billion, up from $41.5 billion in 2006, and profit in a range of $5.30 to $5.80 per share, up from $5.17 per share in 2006. The previous outlook was for sales and revenues of $41.5 to $43.6 billion and profit per share of $5.20 to $5.70. “With continued strength and diversity of the global industries we serve, our growing diversified service businesses, solid economic growth in the global economy and our focus on relentless execution, we are well-positioned for continued success,” Owens said. “We’re working hard to execute our strategy and are well on our way to delivering our financial goals for 2010.”
Cat Financial
Caterpillar Financial Services Corporation reported first-quarter revenues of $713 million, an increase of $56 million, or 9 percent, compared with the same quarter in 2006. First-quarter profit after tax was a record $125 million, a $7 million, or 6 percent, increase over the first quarter of 2006.
Of the increase in revenues, $36 million resulted from the impact of higher interest rates on new and existing finance receivables, $22 million resulted from the impact of continued growth of finance receivables and operating leases (earning assets) offset by a $2 million decrease in other revenue items.
On a pre-tax basis, profit was up $9 million, or 5 percent, compared with the first quarter of 2006. The increase was principally due to an increase of $22 million in margin (wholesale, retail finance, operating lease and associated fee revenues less interest expense and depreciation on assets leased to others), offset by a $6 million increase in provision expense, a $5 million increase in operating expenses and a $2 million decrease in other revenue items. Of the increase in margin, $13 million was due to an improvement in net yield on average earning assets, and $9 million resulted from the growth in average earning assets over 2006 of $919 million.
New retail financing was $2.74 billion, an increase of $119 million, or 5 percent, from the first quarter of 2006. The increase was the result of increased new retail financing, primarily in our Europe and Diversified Services operating segments.
Past dues over 30 days at March 31, 2007, were 2.06 percent compared to 1.58 percent at March 31, 2006, due primarily to the softening of the U.S. housing industry. Write-offs, net of recoveries, were $15 million during the quarter compared with $8 million for the first quarter of 2006. Although these indicators reflect increasing trends over the prior year, they are in line with management’s expectations for 2007.
Caterpillar Inc. Vice President and Cat Financial President Kent M. Adams said, “We have focused on executing well, and these results demonstrate we are succeeding. The results reflect the strength of Team Caterpillar in the diverse industries we support.” IBI
