CNBC Stock Blog

Caterpillar to Hit Guidance Despite Global Weakness: Analyst


Although global economic concerns in China, Brazil, and Europe persist, one analyst told CNBC that he expects Caterpillarto hit its full-year guidance amid a pick-up in domestic construction markets.

Douglas C. Pizac

The world’s largest maker of construction machinery reported first-quarter profitthat beat Wall Street’s expectations, but its shares slid 4 percent during Wednesday trading, on slowdown concerns in China and other emerging markets. The company also raised its earnings guidance for 2012 to $9.50 per share from $9.25 a share.

“They’re going to do at least $9.50,” said Eli Lustgarten, senior research analyst at Longbow Research. “Demand is going to be fine this year, but you have to temper it with the fact that this is a very, very tough global environment.”

Although Lustgarten said the company’s domestic business is “quite strong,” China, Brazil, and Europe are all exhibiting signs of weakness. Still, the construction market is beginning to show signs of life, he added.

“Both residential and nonresidential are starting to perk up, and the equipment purchases by the dealers have remained robust as they try to get into position to handle what should be a better market for the rest of this year, and hopefully the next couple of years, in construction,” he said.

In the report, Caterpillar said its acquisitions last year of Bucyrus International, a mining equipment maker, and MWM Holding, an engine maker, helped offset decreased demand for construction equipment in Brazil and China. During the quarter, the purchases boosted sales by $1.1 billion.

But investors should not expect Caterpillar to announce any other acquisitions in the near future, Lustgarten said.

“Well, there’s always one that’s possible, but I think for the next 12 to 18 months, they’re going to sit there and try to absorb all the mining,” he said. “You know, they made three big acquisitions. I wouldn’t expect them to do a big one in the short term — at least in the next 12 to 18 months.”

—The Associated Press contributed to this report.

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Eli Lustgarten does not own shares of Caterpillar.



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