Beat ? --> Yes (reported $1.74/share vs estimates of $1./share...Year over year EPS growth of 40% vs. 2Q07's $1.24/share)
Profits --> Up 34% to $1.1 Billion (from $823 million)
Sales --> Up 20% to $13.62 Billion (from $11.36 Billion)
* Currency Effect --> the weaker U.S. dollar added $384 million to Sales (or 3%)...it also negatively impacted operating profits by about $62 million (or 5.5%)
Machine Sales: Up 17% to $8.5 Billion
Engine Sales: Up 28% to $4.3 Billion
Financial Product Sales: Up 11% to $827 million
* Sales Breakdown By GEO:
1.) Asia Pacfic sales grew by 52%:
AP Machinery sales: Up 50% to $1.4 Billion
AP Engine sales: Up 57% to $745 million
2.) Europe-Africa-Middle East (EMEA) sales grew by 22%:
EMEA Machinery sales: Up 15% to $2.6 Billion
EMEA Engine sales: Up 34% to $1.7 Billion
3.) Latin America sales grew by 27%:
LA Machinery sales: Up 23% to $1.0 Billion
LA Engine sales: Up 42% to $371 million
4.) North America sales grew by 7%:
NA Machinery sales: Up 8% to $3.5 Billion
NA Engine sales: Up 9% to $1.5 Billion
Other Highlights + Guidance:
* CAT's 2008 FY Guidance: CAT expects Total 2008 Company Sales of $50 Billion and EPS of about $6.00 per share (fyi, this means CAT is currently trading at a 12 P/E to its 2008 Earnings)
* CAT's 2008 Material Cost Guidance: CAT expects total 2008 material costs to increase by about 2.5-3.0% vs. 2007...this comes out to about $600 million
* International Sales made up 60% of total company sales (compared to 55% last year)
* International sales grew 30% year over year
* Labor Base: CAT ended 2Q08 with 105,322 employees (up 9% or 9,000 from 2Q07)
Conference Call Quotes:
* CAT Director of I-R Mike Dewalt on International Growth: "This quarter, 60% of our sales and revenues were outside North America. A year ago in the second quarter, that number was 55%. But I think to really appreciate the magnitude of the shift in geographic mix, we need to go back and look at what happened over the past two years, when North America was coming off of its peak. Compared with the second quarter of 2006, Asia Pacific is up 84%, Europe, Africa, Middle East is up 60%, and Latin America is up 55%. And during that same period, sales and revenues in North America were down 3% and actually closer to 13 if you adjust for Progress Rail which we acquired at the end of the second quarter of 2006...China has been very good growth. Actually I do not see any signs of declining demand in China. It looks pretty good. Now again, our sales to a degree are limited by production."
* Mike Dewalt on the Mining Industry + Related Equipment Sales: "Mining is doing well, particularly for coal. Coal prices are up substantially from last year and U.S. exports of coal are rising. Sales to coal customers were well up from the same period a year ago."
* Mike Dewalt on a Weakening Western Europe Outlook: "We have, however, lowered our expectations for European machine sales. Like other companies, you have heard from, we have seen declines in Europe. We expect those declines to continue through 2008. We have adjusted our outlook accordingly and we expect to lower production schedules somewhat in Europe, particularly for smaller machines."
* CAT CEO Jim Owens on Commodities + Impact to Material Costs: "Commodity prices, as we have indicated several times, could drop fairly significantly. I am talking 30 percentish and still be at levels that would be attractive to drive investment in the mining and oil and gas industries because there has been such a prolonged period of under investment...I am a little concerned, very specifically, about the steel industry because there is more concentration globally in the steel industry. The energy costs are clearly up quite a bit. Iron ore pellet prices are up quite a bit. And they have a pretty strong position to push a lot of that through to the market...I think if there is a significant decline in commodity prices, from current levels, then you will still see pretty strong demand because of the, again, very prolonged under investment that occurred in global mining and in global energy. And that would be coal, oil, gas, power distribution, et cetera. Those things play to our strengths. And I think even with the commodity price decline, which is likely in my view, we will see continued strong demand in those sectors."
* CAT (Mike Dewalt + Jim Owens) on timing of a U.S. Economic Recovery: "You know, it would be extraordinarily unusual for the U.S. not to be in a fairly significant recovery by 2010 in my view...you know, there is frequently this glass half-empty view that North America, the U.S. is declining and is going to get worse. I mean, it has been going down now for over two years. It is way off the peak. It is down order of magnitude new machine sales to users 40%, so you know, it has already seen quite a fall...It has dropped as much as it did in the last two recessions, the '91-'92 and the 2001-02 recession already, and will probably get a little worse. Then I think it will begin to recover. I do not know when that recovery is going to start as we get out to '09. We will give you the '09 outlook , but whether it is early '09, mid-'09, late '09, we'll see, but I would be very surprised if it isn't underway before we get to 2010."
* Mike Dewalt Summarizing CAT's 2Q08 Results: "Six key points here, just to summarize: first, we had a good quarter, our best ever for sales and revenues and profit. Despite severe weakness in the U.S., a weaker Europe, a negative product mix and a negative impact related to currency. Second, our costs are up from last year. But when you consider overall inflation, we are doing fairly well. In fact, manufacturing costs in the second quarter were only up 1.4%, and that includes labor, overhead and material costs. And considering where inflation has been, particularly for material costs, that is not too bad. That said, we still have a lot of room to improve. And we think we are doing the right things to drive that improvement. Okay, third point, in terms of the outlook, we do see a weakening picture in North America, Western Europe and Japan and they are all included in our full year outlook. Fourth point, our order backlog continues to be very strong. Commodity-related end markets are doing very well and from a geographic standpoint, the developing world continues with good growth. Point five, sales of many of our products are production constrained. For most large machines and engines, we are selling as much as we can make. And finally, we have a diverse business in terms of products, services, end-markets, and geographies. We have some that are doing very well and that are helping to offset very negative impacts from others. "
Full Disclosure: I own shares of CAT.
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