Marking the fourth straight year of double-digit profit growth and the third consecutive year of record sales and profit, Caterpillar Inc. reported 2006 sales and revenues of $41.517 billion and profit of $3.537 billion, or $5.17 per share, up 28 percent from a year ago. The company also reported a record fourth quarter with sales and revenues of $11.003 billion and profit of $882 million, or $1.32 per share, up 10 percent from last year.
“2006 was an extraordinary year for Caterpillar. It was the best ever in terms of top-line sales and revenues and profit. The commitment of our employees, dealers and suppliers allowed us to achieve these financial results, and I thank them for their hard work,” said Chairman and Chief Executive Officer Jim Owens.
For the year, sales and revenues increased $5.178 billion— $3.321 billion from higher sales volume, $1.464 billion from improved price realization, $315 million from higher Financial Products revenues and $78 million from the effects of currency.
2006 profit increased $683 million from 2005. The increase was largely due to improved price realization and higher sales volume, partially offset by higher core operating costs.
For the fourth quarter, sales and revenues increased $1.340 billion—$951 million from higher sales volume, $190 million from improved price realization, $146 million from the effects of currency and $53 million from higher Financial Products revenues.
Fourth-quarter profit increased $36 million from 2005. The increase was due to improved price realization and higher sales volume despite an unfavorable geographic/product mix of sales and was largely offset by higher core operating costs.
“What team Caterpillar was able to accomplish in 2006 is a reflection of the diversity of the industries we serve, the global need for our products and services and the strength of our partnership with our dealers and suppliers,” commented Owens. “We took advantage of our financial success—including strong cash flow—to fund growth in capacity, continue aggressive new product development, complete the strategic acquisition of Progress Rail, increase the dividend rate by 20 percent and buy back more than $3 billion in stock. These actions will deliver longterm benefits for our customers, employees and stockholders.”
2007 Outlook
In 2007, the company expects another record year with sales and revenues in a range of $41.5 to $43.6 billion, which is up 5 percent from 2006, and profit in a range of $5.20 to $5.70 per share.
“I’m anticipating great things for Caterpillar in 2007. Despite a sharp decline in two key North American industries—on-highway truck engines and U.S. housing—and an expected reduction in dealer inventories, we are projecting another record year in 2007,” Owens said. “We expect to improve profit per share at a higher rate than sales and revenues, and that means a key focus in 2007 will be cost management.”
Looking beyond 2007, Owens commented, “We’re wellpositioned to build on the extraordinary results we’ve delivered over the past few years. Our investment in new products has given us our strongest product line in history, and we’re continuing to invest in our facilities around the globe to add capacity and improve our operations. Quality, velocity, process excellence with 6 Sigma and engaged employees are the foundations of our strategy to deliver financial results through the end of the decade that should be very rewarding to our stockholders—we are projecting sales and revenues in excess of $50 billion and compound annual growth in profit per share of 15 to 20 percent from 2005 to 2010.
Cat Financial
Caterpillar Financial Services Corporation (Cat Financial) today reported record revenues of $2.76 billion for 2006, an increase of $409 million, or 17 percent, compared to 2005. Profit after tax was a record $473 million, a $109 million, or 30 percent, increase over 2005.
Of the increase in revenues, $217 million resulted from the impact of continued growth of finance receivables and operating leases (earning assets) and $197 million from the impact of higher interest rates on new and existing finance receivables, offset by a $5 million net decrease in associated fees and various other revenue items.
On a pre-tax basis, profit was up $151 million, or 28 percent, compared with 2005, principally due to an increase of $163 million in margin (wholesale, retail finance, operating lease and associated fee revenues less interest expense and depreciation on assets leased to others), which was largely due to a $2.3 billion increase in average earning assets over 2005 and an improvement in net yield on average earning assets. In addition, profit increased $24 million due to a decrease in provision expense, primarily resulting from a smaller increase in earning assets ($2.3 billion) compared to 2005 ($3.4 billion). These increases were offset by $25 million in higher operating expenses and an $11 million decrease from various other net revenue items.
New retail financing was at a record $12.16 billion, an increase of $504 million or 4 percent from 2005. The increase was the result of increased new retail financing, primarily in our Diversified Services, North America and Europe operating segments.
Past dues over 30 days at December 31, 2006 were 1.71 percent compared to 1.42 percent at December 31, 2005, primarily attributable to the softening of the U.S. housing industry. Write-offs or net of recoveries were $46.9 million during 2006 compared with $44.7 million for 2005.
Caterpillar Inc. Vice President and Cat Financial President Kent Adams said, “We are pleased with our record revenue and profit results this year. This achievement would not have been possible without the teamwork and excellent performance provided by Caterpillar dealers, marketing organizations and our employees. We remain focused on delivering value to our customers around the world through this partnership.” IBI
