In order to meet increased global demand for its skid steer, compact track and multi-terrain loaders, Caterpillar Inc. (CAT) announced plans to expand its Compact Construction Equipment operations in Sanford, North Carolina.
Caterpillar plans to begin construction on the facility in September 2010 and expects to commission in July 2011. The total workforce will reach 750, when the plant adds 325 workers over a five-year time span.
The company’s expansion plans include the construction of a 270,000-square-foot building that will house logistics and the latest robotic welding technology for fabrication production.
This news comes on the back of Caterpillar’s announcement on July 30, 2010, of construction of another manufacturing and assembly facility in Winston-Salem, North Carolina. The company plans to construct an approximately 850,000-square-foot, state-of-the-art manufacturing facility for the machining, assembly, test and painting of axle assemblies for large mining machines.
Construction on the Salem facility is expected to begin in early November 2010, with production beginning in the first quarter of 2012. Once fully operational, the plant will employ roughly 400 workers over a five-year period. The expansion will allow Caterpillar to substantially increase its capacity, improve process capability, flow of operations, improve its supply chain efficiency and thus allow it to better serve its customers while reducing operating costs.
On July 22, 2010, Caterpillar announced its second-quarter results. On a sequential basis, EPS more than doubled to $1.09 in the quarter from 50 cents in the first quarter, marking it one of the most spectacular increases in the company’s history. The company outstripped the Zacks Consensus Estimate by 24 cents and the year-ago results, at 60 cents, by 82%. Superior performance was driven by improved demand across all regions, particularly in developing economies.
Revenues in the quarter jumped 31% year over year to $10.4 billion and was well above the Zacks Consensus Estimate of $9.8 billion. Region-wise, Latin America led with a growth of 83%, followed by Asia-Pacific, North America and EAME markets posting growth rates of 45%, 24% and 8%, respectively.
Caterpillar’s current revenue guidance now stands in the range of $39 billion to $42 billion compared with its previous guidance of $38 billion to $42 billion. Economic improvement in the developing economies of Asia/Pacific and Latin America, improving construction spending and end-user demand for machinery in America, strong mining related order activity, and positive price realization to the tune of 1% led to the improved outlook. The Zacks Consensus Estimate for fiscal 2010 revenue is $39.4 billion.
The company also increased the EPS guidance to a range of $3.15 to $3.85 from $2.50 to $3.25 earlier. The elevated guidance reflects heightened revenue expectations; margin expansion given the company’s cost cutting efforts, favorable material costs and absence of redundancy costs. However, these positives will be offset by unfavorable product mix, higher income taxes, increased research and development expenses, pension expenses, and incentive compensation. The Zacks Consensus Estimate for fiscal 2010 earnings is $3.69 per share.
We believe Caterpillar’s investment in expansion and acquisitions (the most recent being Electro-Motive Diesel) could boost its long-term earnings potential. We also appreciate Caterpillar’s expansion plans in the emerging markets. Robust growth in the Asia-Pacific region and Latin America, and continued improvement in the mining and energy markets will strengthen Caterpillar’s volumes and sales. The company will be a prime beneficiary of increased domestic and international infrastructure spending.
Further, Caterpillar is well positioned to expand margins through its CAT Production System initiatives, ultimate pricing power, market leadership and exposure to the global infrastructure boom as end-markets rebound. We maintain our Outperform rating and the Zacks #1 Rank (Strong Buy) on Caterpillar.
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