Caterpillar Inc. reported record second-quarter sales and revenues of $11.356 billion. The company also reported profit of $823 million, or $1.24 per share, for the second quarter ending June 30, 2007.
“We’re pleased with second-quarter sales and revenues which demonstrated the strength of our global reach. Sales growth outside of North America largely offset the impact of the planned decline in North American dealer machine inventories, the severe drop in demand for on-highway truck engines and weakness in North American construction markets,” said Chairman and Chief Executive Officer Jim Owens. “Sales and revenues were up seven percent from last year’s second quarter. The strength of economies outside of North America, our broad global footprint and growth in diversified service businesses all helped us deliver higher sales.”
Sales and revenues of $11.356 billion increased $751 million from the second quarter of 2006. The increase was a result of:
- $943 million improvement in sales volume outside North America
- $411 million of sales from Progress Rail, which was acquired in June of 2006
- $198 million of higher sales related to the impact of currency
- $168 million of improved price realization, despite an unfavorable geographic sales mix
- $95 million of additional Financial Products revenues.
The increase was partially offset by a $1.063 billion decline in physical sales volume in North America, which was largely a result of the following three factors:
- Dealer Machine Inventories—North American dealers reduced inventory, as planned, by about $800 million during the second quarter of 2007 as compared with a $200 million reduction in the second quarter of 2006. The improvement this year is a joint effort with dealers, is a key element of the Cat Production System (CPS) and is consistent with our goal of improving velocity throughout the value chain.
- On-highway truck—a $366 million drop in on-highway truck engine sales.
- Weak construction activity in North America, notably U.S. housing related markets, resulted in lower sales.
Profit of $823 million was down $223 million from the second quarter of 2006, and profit per share (PPS) decreased $0.28— from $1.52 per share in the second quarter of 2006 to $1.24.
“Disappointing earnings in the second quarter were attributable to the sharp negative swing in on-highway truck engine profitability, weakness in North American machine sales, continued selected supply chain disruptions and higher material costs,” said Owens. “Manufacturing costs were also higher, in part, due to transitional costs associated with the launch of the Cat Production System,” added Owens.
“While costs were a challenge, we were pleased with the spectacular sales growth outside North America and the performance of our engine businesses other than on-highway truck. As we look forward, we’re encouraged by the strength of our order board overall, particularly for our large machines and engines,” said Owens.
Caterpillar is maintaining its full-year outlook for profit per share. The company expects full-year sales and revenues of about $44 billion, up from $41.5 billion in 2006, and profit in a range of $5.30 to $5.80 per share, up from $5.17 per share in 2006.
“With six months under our belt we’re confident in the topline and have adjusted our expectation for sales and revenues to about $44 billion,” said Owens. “While we have more work to do on costs, we are maintaining our per share profit outlook of between $5.30 and $5.80 for the full year. We expect core operating cost comparisons to improve and are taking action to lower discretionary spending. However, we’ll continue to aggressively implement the Cat Production System. We know that CPS deployment and 6 Sigma discipline are the keys to realizing our 2010 targets for safety, quality, velocity and PPS growth.
“Given the substantial investments that we are making in new product technology, expanded capacity, CPS deployment and selective acquisitions, I’m more confident than ever that we’ll deliver solid top-line growth and our goal of 15-20 percent average annual growth in PPS to 2010. Our leadership team is committed to delivering these results, and we have a good line of sight to achieving these goals,” Owens said.
Caterpillar Financial Services Corporation reported record revenues of $747 million, an increase of $71 million, or 11 percent, compared with the same quarter in 2006. Second quarter profit after tax was a record $123 million, a $17 million, or 16 percent, increase over the second quarter of 2006.
Of the increase in revenues, $48 million resulted from the impact of higher interest rates on new and existing finance receivables, and $6 million resulted from the impact of continued growth of finance receivables and operating leases (earning assets). In addition, other revenues increased $17 million, primarily due to the absence of a $16 million write-off of a repossessed marine vessel that occurred in the second quarter of 2006.
On a pre-tax basis, profit was up $32 million, or 21 percent, compared with the second quarter of 2006. The increase was principally due to an increase of $28 million in margin (wholesale, retail finance, operating lease and associated fee revenues less interest expense and depreciation on assets leased to others) and a $17 million increase in other revenue items offset by a $13 million increase in operating expenses. Of the increase in margin, $26 million was due to an improvement in net yield on average earning assets, and $2 million resulted from the growth in average earning assets over 2006 of $252 million.
New retail financing was a record $3.65 billion, an increase of $452 million, or 14 percent, from the second quarter of 2006. The increase was the result of increased new retail financing, primarily in our Diversified Services, Europe and Asia-Pacific operating segments.
Past dues over 30 days at June 30, 2007 were 2.09 percent compared to 1.70 percent at June 30, 2006, due primarily to the softening of the U.S. housing industry. Write-offs, net of recoveries, were $12 million for both second quarters of 2007 and 2006. Although past dues reflect an increasing trend over the prior year, it is in line with management’s expectations through second quarter 2007.
Caterpillar Inc. Vice President and Cat Financial President Kent M. Adams said, “The results reflect the strength of Team Caterpillar Financial in the diverse industries we support. We continue to focus on execution of our strategy, and these results demonstrate we are succeeding.” IBI