I suggest those who trade and invest in resource stocks or directly in "mined commodities" ought to spend some serious time reading and considering Caterpillar Inc.’s (NYSE:CAT) Q4 2010 Earnings Release – reading time 30 minutes.
Caterpillar is a (if not the) world’s leading manufacturer of construction and mining equipment, hence my interest in the company as one monitor of the resources sectors. Caterpillar’s 2010 results strike me as highly noteworthy. Measured against 2009, in 2010 its sales were up 31%, and its reported profit was up 202%. Caterpillar added about 19,000 to its world workforce in 2010, to end the year with about 104,000 employees. About 7,500 of those 19,000 jobs were added in the U.S., representing a 15% increase in the U.S. based workforce. Based on other disclosures in the earnings release I calculate Caterpillar’s U.S. based workforce to have been about 73,000 at the end of 2010, and its ‘outside the U.S. workforce then to have been about 31,000. If my calculations are correct, this means Caterpillar increased its non-U.S. based workforce in 2010 by just under 60%. In 2010 Caterpillar announced eight new plants, five of which are outside the U.S. In 2011 Caterpillar expects make capital expenditures of about U.S.$3 billion, with over half that to be spent in the U.S.
Caterpillar’s sales numbers are interesting. 2009 consolidated sales were (rounded) U.S.$32 billion and increased to U.S.$43 billion in 2010 – largely attributed to increased sales of machinery. 2011 sales are forecast to be over U.S. $50 billion. I say the sales numbers are "interesting" because they do not reflect what I thought they would. Caterpillar reports its sales breakdown by four world "regions" – North America, Latin America, Eurozone/Africa/Middle East (EAME), and Asia/Pacific. I was expecting to see a large proportionate increase in Caterpillar’s 2010 sales in the Asia/Pacific region, but that wasn’t the case. As a % of Caterpillar’s total sales North America accounted for 38% of sales in both 2009 and 2010, Latin America accounted for 12% in 2009 and 14% in 2010, EAME accounted for 27% in 2009 and 24% in 2010, and Asia/Pacific accounted for 23% in 2009 and 24% in 2010. Detailed sales information is provided in the Earnings Release.
On pages 16 – 17 of the release, Caterpillar management provides its 2011 Economic Outlook. Highlights include:
- Forecasted world economic growth at more that 3.5%;
- Improvement of in most countries;
- Expectation that most governments and central banks will regard job creation rather than inflation as the dominant economic issue;
- 2011 average prices for copper, West Texas Intermediate oil, and Central Appalachian (thermal) coal of (U.S.$) 4.25, $92.00 and $72.00 respectively; and
- World production of key (I assume "base") metals will increase in a range of from 2% for copper to 9% for iron ore.
Caterpillar management cites economic risks to include:
- Possible "too quick" tightening by developed country Central Banks; and
- Differences in trade and currency policies that are increasing the potential for "trade frictions."
Caterpillar is a world business run by experienced and successful managers who can be assumed from operating and business forecasting/planning perspectives be focused every day on the very industries resource investors are focused on. The senior executives of Caterpillar and of its major competitors are dealing "hands-on" with things that I think make both their company results, and their forecasts and prognostications things to be understood and thought about by traders and investors in resource equities. I hold to this view because I strongly believe that business operators with hands-on experience have knowledge, exposure and "real world based" judgment that technical analysts and "high level" commentators frequently do not have. Again, I suggest you take 30 minutes of your time to read the Caterpillar earnings report.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.