This summary is based on the second quarter fiscal 2008 earnings call conducted by Caterpillar Inc. (CAT) on April 18, 2008.
Management:
Director of Investor Relations: Mike DeWalt
Chairman & CEO: James Owens
Group President: Edward Rapp
CFO: David Burritt
Key Investors Issues
- EPS were $1.45 a share compared to $1.23 a share last year.
- Profit was $922 million compared to $816 million a year earlier.
- Sales rose 18% to $11.8 billion.
Second Quarter Highlights
Sales and revenues were up just under $1.8 billion from the first quarter last year, and the elements were machine volume up $724 million, and that is about 11%.
- Engine volume was up $363 million, and that was about 13%.
- Currency impacts increased sales $310 million, and that means that sales that were actually denominated in currencies other than dollars translated into more dollars because the dollar was weaker on average than the first quarter last year.
- Price realization added $260 million, and $160 of that was from engines and $101 was machinery, and financial products revenues were $122 million.
Sales and revenues were up 37% in the Asia Pacific region.
They were up 30% in Europe, Africa, Middle East region which includes the CIS. Latin America was up 24% and even North America was up 4%.
Sales outside North America were primarily driven by increases in the developing world and that is Asia Pacific excluding Japan and Australia, the CIS, Africa, and Middle East regions are the EAME, and in Latin America.
- These regions have tended to be the beneficiaries of rising commodity prices, their economies are growing faster than in the more developed world, and they are spending it on infrastructure growth.
- In total, 58% of sales and revenues were outside North America. A year ago that number was 53%. However, the fact that North America increased 4% in the face of in markets that continue a severe decline may have been a surprise. End user demand for new machines is continuing to decline in North America, and the company is still in the severe trough in the United States.
There are several factors that are helping sales in North America, again, despite the depressed end market for construction equipment in the United States.
- As is usual for the first quarter, North American dealers increased inventories. That is common from a historical standpoint. Dealers do tend to build inventory in the first quarter in preparation for the spring and summer when their deliveries are higher. Last year North American dealers took out about $1.1 billion of inventory in the full year and last year in the first quarter they actually held inventories about flat. What that means is that for the full year 2007, Caterpillar sales were depressed beyond what the end market saw because dealers reduced inventories.
- Mining is doing well, particularly in coal. Coal prices are up from last year and U.S. exports of coal are rising. This is an industry that is doing well. In addition, engine volume was up, particularly for truck engines.
- Sales and revenues include a wide array of service related businesses. These businesses are generally not as cyclical as new machine and engine sales.
Profit was up $106 million from the first quarter a year ago and at a $1.45 per share, it was up 22 cents per share from the first quarter of last year.
- Now that profit increase was a result of improved price realization, higher sales volume from machinery and engines and better profit from financial products. Now while the sale volume was higher and a positive, product mix was actually negative and offset some of the benefit. The net positive impact from higher sales was partially offset by higher costs. Overall, manufacturing costs were up $171 million, or about 2% and was about in line with overall cost inflation.
- Supply chain related operating efficiencies and tight capacity in many of factories continue to be an issue.
SG&A and R&D costs were higher, but both improved as a percent of sales and revenues.
- The impact of currency was also a negative. In total about $100 million for machinery and engines. Gross margin was negatively impacted $33 million. SG&A and R&D were negatively impacted $21 million a result of currency and the currency impact in other income and expense line, which is below operating profit, was also negative $47 million versus the first quarter last year.
- In this quarter and in the first quarter of last year, the company had gains on the sale of assets. Last year the company sold an investment related to marine engine business and this quarter it had the gain on the sale of interest in ASV.
- Total consolidated operating profit in dollars was $1,293 million. That was 11% of sales and revenues. Now it was 11.4% in the first quarter last year and so was down four-tenths of a percentage point. Price realization was up and was more than enough to offset manufacturing and SG&A and R&D cost increases, so that was a net positive. But currency impacts were a net negative to the margin rate. Sales were up 310 and total operating costs were negatively effected 364.
- Product mix was unfavorable and that had a negative impact of about eight-tenths of a percent point at an operating profit level compared with the first quarter last year. So in total, operating profit was hurt by currency and product mix by about 1.3 percentage points.
