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Caterpillar Poised to Dig Double-Digit Gains

The improving construction picture in North America will likely lead to climbing U.S. volume for the year, says Morningstar's Adam Fleck.


 Caterpillar (CAT) reported strong fourth-quarter results Thursday that exceeded our expectations. The company saw substantial pickups in all facets of its business, with double-digit volume growth in each of its three major machinery and engine segments. Including the impact of recent acquisitions and positive price realization, nonfinancial revenue climbed 36% year over year during the quarter and 44% for the full year.

With this higher sales base, Cat widened operating margins to 11.3% versus 10.2% a year ago, although this profitability has remained relatively stagnant over the past three quarters because of declining sequential gross margins. Nonetheless, management now foresees a better near-term operating environment than a quarter ago and raised the low end of its 2012 top-line guidance to about 13%-20% growth (from 10%-20%). Our current sales forecast for the year is within this range and we're still comfortable with our long-term outlook, but we may increase our fair value estimate slightly, given the firm's outperformance in 2011 and reduced short-run economic risk.

Adam Fleck does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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