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Equipment manufacturer profits jump

July 22, 2010

” Caterpillar Inc.’s profit soared 91% as machinery sales increased sharply from last year. The company lifted its full-year earnings outlook again, now projecting $3.15 to $3.85 a share, up from $2.50 to $3.25, as it lifted the low end of its sales prediction by $1 billion.

‘We continue to be positive about the longer-term prospects for many of the industries we serve–like mining, energy, infrastructure, electric power and rail,’ said Chairman and Chief Executive Jim Owen. “

Source: Wall Street Journal, July 22, 2010

Observations:

  • Volvo, Sandvik & Atlas Copco also reported increasing profits this week, mainly driven by growth of sales in BRIC countries.
  • Caterpillar announced a $700mln multi-year investment in a new line of mining shovels and capacity extension for mining trucks.
  • Caterpillar mentions a range of underlying growth figures driving the increased machinery sales: US non-metals mining growth of 6%; Canadian quarry growth of 2%; US coal production growth of 3%; Latin America mining output growth of 2%; 17% mining output growth in Brazil (44% for iron ore).

Implications:

  • Equipment manufacturers profits decreased mainly due to reduced inventory levels of dealers. As many mining firms are more clear about the continuation of development projects after the crisis, inventory levels are picking up again.
  • The established players in the equipment arena are preparing for increasing competition from emerging countries. Not only mining production is shifting to the new world, mining suppliers will face new challenges too. Sourcing of supplies and parts from across the world and gaining trust of Chinese and Russian investors will become increasingly important.

©2010 | Wilfred Visser | thebusinessofmining.com

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