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Caterpillar chairman expects strong revenue growth over next few years

Posted March 11, 2008 11:00 pm

Paul Gordon

Caterpillar Chairman Jim Owens said Tuesday that despite a weak U.S. economy, the company expects revenue to increase as the company does more business in emerging markets around the world.

While capital investment will likely temper profit growth in the near term, Caterpillar believes it will put the company in a better long-term position, Owens told the analysts at CONEXPO/CON-AGG 2008 -- the country's largest construction equipment show -- in Las Vegas. The show opened Tuesday and continues through the week.

Owens, who spoke with the analysts and with institutional stakeholders in a meeting that was simulcast over the Internet, said Caterpillar expects revenues to "approach $60 billion" by 2010, with profit growth continuing 15 percent to 20 percent a year through 2012. Revenues were $45 billion in 2007.

Owens said the need for infrastructure development and improvement worldwide will be a large driver of that continued growth. He added the company will likely add factories in China and India, even possibly in Vietnam and Russia as that demand continues to grow.

"Over the next decade, that should translate into increased sales of Caterpillar machinery, engines and related services," Owens said. "In addition, most emerging-market economies are in good shape, with relatively low inflation and interest rates and strong balance sheets.

"They have a need to invest in infrastructure and they have the resources to do it."

Analysts, however, noted that while Caterpillar's outlook for 2010 revenues changed from $50 billion last year to about $60 billion now, its profit projection was unchanged from a year ago. One analyst asked how Caterpillar could "reconcile that difference" or defend it to stockholders.

Owens said stepping up the capital investment would keep profits from growing a like amount and he believed stockholders would be pleased with the company's reaffirmation that it expects earnings-per-share to reach $8 to $10 by 2010. It was $5.37 a share in 2007, up from $5.17 in 2006, but that was the first year in the last five that the increase from the previous year was less than $1 a share.

"We could earn a lot more if we choose not to put more capacity in place. But that is an important part of our global leadership we want to stake out," he said.

Caterpillar expects capital expenditures to increase from $1.7 billion to $2.3 billion in 2008, while research and development costs are expected to increase 15 percent or more.

Owens addressed other of the analysts' chief concerns the last few years, particularly the company's ability to control core operating costs. Those costs have been high the last few years as the company had to ramp up production quickly to meet demand and has been unable to bring those costs down.

That led to the implementation of Caterpillar Production Systems operating systems in its plants worldwide. Implementation still is ongoing, and Owens said CPS will help get those operating costs under control.

"No company is better positioned to compete in today's global economy than Caterpillar, and by delivering on our strategy we will reward our customers, our employees and, of course, our stockholders," Owens said.

Other highlights of his speech include:

_Owens reiterated he believes the United States will enter a recession during 2008, but that it will likely be "rather shallow instead of prolonged."

_Gross domestic product growth is expected throughout the world through 2017, particularly in the Asia/Pacific region.

_Research and development costs will increase in 2008 for new products as well as meeting upcoming global emissions standards.

To access a replay of Owens' presentation to the analysts, go to www.cat.com/investor.

Paul Gordon can be reached at (309) 686-3288 or pgordon@pjstar.com.

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