Caterpillar’s 2Q Profit Jumps

Caterpillar Inc.’s reported that higher second-quarter profits are up 91% on increased demand for construction equipment from developing countries and improved profit margins. The company raised its full-year earnings and sales outlooks and largely dismissed the likelihood of a double-dip recession in the U.S. and Europe.

“While there are significant economic concerns around that we are watching closely, orders have continued to outpace our shipments and we expect to increase production in the second half of the year,” Chief Executive Douglas Oberhelman said.

The company said it has benefited from accelerated construction and mining activity in China, India, Brazil and other fast-growing countries, offsetting weak demand for bulldozers, excavators and other equipment in the U.S. and Europe.

Caterpillar predicted the developing economies, particularly in Asia, will continue to drive sales growth for Caterpillar machinery, as well as global economic growth. The company expects China’s economy to grow 10.5% this year, followed by India at 8.5%. By contrast, it expects the U.S. economy to grow by 3% and Europe by no more than 1%.

The company’s second-quarter machinery sales jumped 55%, benefiting from reductions in dealer inventories last year. Machinery sales in North America rose 43%, increased 62% in Asia and more than doubled in Latin America. Operating income from machinery sales was $477 million, compared with a $252 million loss a year ago. The company cited higher sales volumes, lower manufacturing costs and higher prices for equipment. The operating margin on machinery was 7.1%.

Engine sales were up 3% at $2.99 billion, but operating income slipped 17% to $462 million on higher costs for research and development and lower sales volumes after the company exited the market for highway truck engines. Revenue from Caterpillar’s finance unit slipped 5% and its operating income fell 28%. For the quarter ended June 30, Caterpillar reported a profit of $707 million.