Caterpillar's 2Q profit jumps 34 percent

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PITTSBURGH (Map, News) - Caterpillar Inc.'s second-quarter profit jumped 34 percent as stronger sales in developing countries outpaced slowing growth in North America, and higher production costs.

The Peoria, Ill.-based maker of backhoes and other heavy equipment on Tuesday reported profit of $1.11 billion, or $1.74 per share, for the three months ended June 30, compared with $823 million, or $1.24 per share, a year earlier.

The results easily beat Wall Street expectations.

Quarterly revenue rose 20 percent to $13.62 billion from $11.36 billion, with sales shifting outside North America. Caterpillar generated 60 percent of quarterly sales and revenue outside North America, up from 55 percent a year earlier.

Analysts polled by Thomson Financial, on average, expected a more modest profit of $1.54 per share on revenue of $12.69 billion.

Caterpillar said its quarterly sales and profit per share set all-time records.

"While North America remains depressed, and we've seen softening in Western Europe and Japan, Caterpillar continues to grow in emerging markets and in global industries like energy and mining," Chief Executive Jim Owens said in a statement.

Owens said "supply is very tight" for many Caterpillar products, "and we are producing as much as we can."

In June, the company announced plans to expand facilities in the United States, China and India.

"We need to bring additional capacity on line to support world demand for infrastructure, energy and mining, and to be prepared for the upturn in the United States when it comes," he added.

Machinery and engine sales grew 21 percent to $12.8 billion in the quarter, from $10.6 billion last year.

In the Asia-Pacific region, machinery sales increased 50 percent, to $1.4 billion, while engine sales climbed 57 percent, to $745 million. In Latin America, machinery sales grew 23 percent, to $1.0 billion, and engine sales jumped 42 percent, to $371 million.

"In order to be successful around the globe, you have to embrace international trade, and that's what we've done," Chief Financial Officer Dave Burritt said in an interview.

Manufacturing costs rose about 1.5 percent due to steeper expenses for steel and other materials, and freight, pushed upward by soaring fuel prices.

For the full year, Caterpillar said it now expects revenue of about $50 billion and profit of about $6 per share. That's above earlier projections for revenue of $47.2 billion to $49.5 billion, but lower than the upper end of an estimated profit range of $5.64 to $6.18 per share.

Wall Street anticipates annual earnings of $6.03 per share, on sales of $50.07 billion.

The company said it expects raw material costs to swell 2.5 percent to 3 percent in 2008 as a result of higher prices for steel and other commodities.

Longbow Research analyst Eli Lustgarten said in an interview the results showed Caterpillar was learning to manage amid difficult cost conditions.

But the quarter "wasn't quite as good as it looked," he said, noting a gain from a tax benefit. And the weaker forecast for the rest of the year - which assumes a federal interest rate cut - raises questions about the first half of 2009, Lustgarten said.

Also Tuesday, Caterpillar said in a regulatory filing it plans to raise prices by 5 percent to 7 percent worldwide starting in January due to "current industry factors as well as general economic conditions."

Shares of Caterpillar rose $1.75, or 2.4 percent, to close at $74.98 in trading Tuesday.

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