Caterpillar's first-quarter earnings this year improved on last year's total by 426 percent. (Photo Credit: CC BY-ND/tigereye/Caterpillar Machines)

Caterpillar, the largest heavy equipment maker and fourth-largest exporter in the world, reported record profits Friday. According to Agence France-Presse, first-quarter 2011 profits for the Caterpillar company hit $1.22 billion, a 426 percent increase over the same period the previous year. Sales increased 57 percent to $12.95 billion over the same period.

As Caterpillar goes, so goes the global economy

The Peoria, Ill., company is closely tied to success trends in the global economy, as Caterpillar construction and mining products are used to build infrastructure. CAT construction equipment sales climbed 71 percent over first quarter 2010; mining and resource industry gear sales rose 84 percent; and the sale of engines went up 51 percent.

To let some of the air out of the balloon, however, Caterpillar acknowledges that construction activity in the U.S. and other developed countries “remains weak,” and no more than modest gains are expected in the U.S. and Europe in 2011. The spike in CAT construction equipment sales in the U.S. is being attributed to dealers, companies and individuals replacing old rental equipment and restocking fleets. Such activity accounted for $800 million of Caterpillar’s sales in the quarter.

Earnings per share ‘an all-time quarterly record’

Caterpillar’s price per share shot up to $1.84 after the record first quarter, a 411-percent increase over the 36 cent price in the first quarter of 2010. The average prediction among analysts was $1.31. The construction equipment company’s success contributed to a 2.6 percent leap up among blue chips on the Dow Jones Industrial Average at midday Friday. In order to accommodate the increased demand for its products, Caterpillar has taken on 10,104 additional full-time employees and 10,709 flexible staff leading up to the latest explosion.

In the wake of Caterpillar’s strong showing, not everyone believes U.S. industry and manufacturing are stagnant.

“The industrial sector and the manufacturing sector of this country are much stronger than many investors have perceived,” said Rob Lutts, president and CIO of Salem, Mass., wealth management firm Cabot Money Management.

Strong mining in Latin America

Construction activity in certain parts of the developing world has grown significantly, according to the Wall Street Journal. Latin America was among the hottest growth spots for Caterpillar, as sales increased by 84 percent. According to a company press release, global economic growth has increased demand and price for commodities. Mining activity in various regions, Latin America included, has increased considerably.

Sources

Cabot Money Management

Caterpillar

Wall Street Journal

Caterpillar company profile, 2008

Soon, Bucyrus equipment will carry the signature Caterpillar logo. Image: Flickr / pacomexico / CC-BY

In an effort to expand the company, equipment manufacturer Caterpillar is going to purchase Bucyrus mining equipment. Caterpillar currently manufactures everything from big machines to diesel engines. The purchase of Bucyrus will help Caterpillar expand into the mining equipment industry.

The business of Bucyrus

Far from a household name, Bucyrus is a mining-equipment manufacturer. Based in South Milwaukee, Wis., Bucyrus employs just less than 7,000 people and did about $2.65 billion worth of business in 2009. It manufactures equipment to be used in both surface and underground mining for coal, gold, copper and other high-value minerals around the world. Bucyrus equipment has been used to dig everything, up to and including the Panama Canal.

Caterpillar’s offer for Bucyrus

Bucyrus has been on an expansion kick for the last few years. In 2007 and 2010, Bucyrus made deals with DBT GmbH and Terex Mining. Bucyrus is a publicly owned company, and stockholders will be getting $92 a share from Caterpillar. This is about 30 percent above what Bucyrus stocks were trading for at the time of the purchase. This $7.6 billion dollar deal will be financed with equity, debt and available cash via a corporate-sized payday loan no faxing. Caterpillar is relying on the “cheap financing” from low interest rates available in banks.

What the Bucyrus/Caterpillar deal means

The deal between Bucyrus and Caterpillar is orchestrated in such a way that Caterpillar may be able to take advantage of the growing business of mining and the world’s heavy appetite for metals, rare-earth minerals and mined products. While one-third of the business of Bucyrus is sales of their products, two-thirds includes after-market parts and services. In short, Caterpillar will be expanding into a major growth industry. This will also help vertically integrate Caterpillar — meaning the company will not only provide the trucks and big equipment for mining sites but the equipment that will be pulling minerals out of the ground.

Sources

Cat.com
Bucyrus.com
Wall Street Journal