Caterpillar (CAT) Q1 2012 earnings summary

Executive summary

• Record Q1 sales and revenues rose 23% to $15.981B; profit reached $1.586B and diluted EPS was $2.37, both up 29% YoY.

• Mining strength and U.S. replacement demand supported results, offsetting weaker construction demand in China and Brazil.

Financial highlights

• Consolidated operating profit rose 27% to $2.323B; higher volume and price realization more than offset higher manufacturing, SG&A and R&D costs.

• Sales volume added $1.565B, acquisitions $1.144B and price realization $306M to revenue; currency reduced revenue by $4M.

• Operating margin was 14.5%, above 15% excluding Bucyrus and MWM acquisition impacts; incremental margin was ~23% excluding acquisitions.

• Consolidated operating cash flow was $330M versus $765M YoY, pressured by inventory growth and incentive payments; customer advances and higher profit partly offset the decline.

• Other income was $88M versus $17M YoY, largely reflecting the absence of prior-year swap mark-to-market losses and favorable currency impacts.

Outlook and guidance

• FY2012 revenue guidance remained $68B–$72B; diluted EPS outlook rose from $9.25 to ~$9.50 at the midpoint.

• North American growth was expected to roughly offset weaker China and Brazil expectations; Bucyrus and MWM were expected to contribute ~$6B in 2012 sales.

• FY2012 capex was expected at ~$4B, about half in the U.S.; R&D expense was expected to rise ~15%, excluding acquisitions.

• Outlook assumed 1%–1.5% price realization, a 30% effective tax rate and short-term incentive-plan costs favorable by ~$300M YoY; full-year incremental margin expectation was ~25%.

• China sales were expected modestly lower for 2012, with most of the decline in H1; excess channel inventory was expected to be worked down during the year.