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Caterpillar, the world’s biggest maker of earthmoving equipment by revenues, struck a bullish note on the US economy, saying the recovery was entrenched and raising its forecast of new home construction as it reported profits for the first quarter that were well ahead of Wall Street expectations and raised its full-year profits outlook.
The industrial bellwether said stronger than anticipated demand in the US would more than offset weakness in China and Brazil. Its results were boosted by acquisitions and strong sales of mining equipment.
Caterpillar earned a record net profit of $1.59bn or $2.37 per share in the quarter, up from $1.23bn or $1.84 per share a year ago and above analysts’ average forecasts of about $2.13 per share.
The company raised its profit outlook for 2012 to $9.50 per share at the midpoint of its $68bn-$72bn forecast for sales and revenues. The prior outlook was for about $9.25 per share.
Doug Oberhelman, chief executive, said much of the demand in the US was accounted for by resource and construction companies replacing ageing machinery.
“We’re seeing strong global demand for most mining products and significant growth in replacement demand for products in the United States, which more than offset slowing in China and Brazil,” he said.
Caterpillar’s results were boosted by the addition of Bucyrus, the manufacturer of surface mining machinery that it bought for $8.6bn in 2010. Sales by the company’s resource industries division, which includes Bucyrus, rose 73 per cent compared with the same quarter last year.
Equipment replacement by the construction industry in the US was also a big source of revenue in the quarter, with sales rising 36 per cent from last year to $1.78bn.
Caterpillar brushed off concerns about the US economy. “Weaker employment growth in March has created fears that the US economy is headed for another period of slower growth,” the company said.
“Although first-quarter economic growth may slow from the fourth-quarter 2011 rate, available data for the quarter seem to point to an economy that is improving. Payroll employment grew at the fastest pace since the first quarter of 2006, light vehicle sales reached a four-year high, truck freight tonnage is near a record high, and residential building permits were 28 per cent higher than a year earlier.”
The company said US housing starts and permits averaged around an annualised rate of 700,000, above its previous forecast for 2012.
“We anticipate banks will further ease lending standards for home mortgages, mortgage interest rates will remain attractive and the number of households will increase,” the company said.
“In addition, the supply of available new homes and apartments has tightened. As a result, we are revising our forecast of US housing starts upwards to 800,000 units in 2012.”
Caterpillar said it expected growth in China to slow to about 8.5 per cent. It expected infrastructure investment and housing construction to remain weak, although demand for commodities would increase.
Mr Oberhelman said Caterpillar – which cut 19,000 full-time jobs and 18,000 contract positions during the economic downturn – had increased its global workforce by nearly 50 per cent since the start of 2010. The company now employs 127,000 full-time workers and 28,000 contract staff.
“Even without acquisitions, in the past year alone, our workforce in the United States has grown by more than 6,500 people while our workforce is up about 7,200 outside of the United States,” he said.
“We remain on track for another record-breaking year in 2012 at a time when US construction activity remains depressed and economies in Europe, China and Brazil have slowed.
“Although it’s tough to predict the exact timing, we expect positive economic growth moving forward. China and Brazil took steps in 2011 to slow their economies and bring inflation under control. Both countries have realised inflation levels in their targeted range and have begun to move to more accommodative economic policies that should support improved growth later this year.”
Caterpillar shares were trading down 0.7 per cent in pre-market trading at $107.60.