10-QPeriod: Q2 FY2007

CATERPILLAR INC Quarterly Report for Q2 Ended Jun 30, 2007

Filed August 2, 2007For Securities:CAT

Summary

Caterpillar Inc. reported strong sales growth in the second quarter of 2007, reaching a record $11.356 billion, a 7% increase year-over-year. This growth was primarily driven by robust international demand, particularly in EAME and Asia/Pacific, which offset a planned reduction in North American dealer inventories and a significant decline in on-highway truck engine sales. Despite the higher revenues, profit per share saw a decrease to $1.24 from $1.52 in the prior year's quarter, largely due to higher core operating costs, including increased manufacturing costs, material costs, and transitional costs associated with the Cat Production System implementation. The company is maintaining its full-year profit per share outlook, anticipating approximately $44 billion in sales and revenues for 2007.

Key Highlights

  • 1Record quarterly sales and revenues of $11.356 billion, up 7% year-over-year.
  • 2Strong international sales growth, especially in EAME and Asia/Pacific, compensated for planned North American inventory reductions and a decline in on-highway truck engine sales.
  • 3Profit per share decreased to $1.24 from $1.52, impacted by higher operating and manufacturing costs, material costs, and Cat Production System implementation expenses.
  • 4Engines sales saw mixed performance, with significant growth in electric power, petroleum, and marine applications, but a substantial decline in on-highway truck engines.
  • 5Financial Products segment revenues increased by 14%, driven by growth in average earning assets and higher interest rates.
  • 6The company maintained its full-year sales and revenue outlook of approximately $44 billion and its profit per share outlook of $5.30 to $5.80.
  • 7Caterpillar is actively managing its cost structure and focusing on operational efficiencies through the Cat Production System and Six Sigma discipline.

Frequently Asked Questions

Sales growth was driven by a $943 million improvement in sales volume outside North America, $411 million from the acquisition of Progress Rail, $198 million from favorable currency impacts (primarily the strengthening euro), $168 million in improved price realization, and $94 million in additional Financial Products revenues. International economies, particularly in EAME and Asia/Pacific, showed strong performance, boosting demand for machinery and engines.

Profit per share decreased primarily due to higher core operating costs. This included increased manufacturing costs stemming from operating inefficiencies (due to lower truck engine production), supply chain challenges, new product introductions, and transitional costs from the Cat Production System implementation. Higher material costs also contributed to the compressed profitability.

Caterpillar maintained its full-year outlook, expecting sales and revenues of about $44 billion (up 6% from 2006) and profit per share in the range of $5.30 to $5.80. While international sales are expected to remain strong, North America is projected to see further declines due to dealer inventory reductions and continued weakness in key industries.

Caterpillar is focusing on improving operational efficiencies through the Cat Production System and Six Sigma discipline. They are also taking actions to lower discretionary spending and expect core operating cost comparisons to improve in the second half of the year compared to the prior year, despite anticipated increases in material costs.