Commodities & Metals

Ag/Mining Earnings on Fire: Caterpillar, Potash, and Peers (POT, CAT, BHP, CNH, BUCY, MOS, MOO)

The message delivered today by earnings reports from Potash Corp. of Saskatchewan (NYSE: POT), Caterpillar Inc. (NYSE: CAT), and CNH Global N.V. (NYSE: CNH) is that as long as the world’s population continues to eat and emerging markets continue to thrive, sales and profits will continue to rise. Ditto for mining.

Potash Corp. reported fourth-quarter EPS of $1.61, including a charge of $0.16/share that the company spent to fend off a $38.6 billion takeover by BHP Billiton Ltd. (NYSE: BHP). The company posted revenue of $1.81 billion. Analysts were expecting EPS of $1.65 on revenue of $1.63 billion. In the same period a year ago, Potash Corp. posted EPS of $0.79 on revenue of $1.1 billion.

Caterpillar might be thought of as more of a mining play than just agriculture, but history has shown that the two are often intermingled.  The equipment giant reported EPS for its fourth-quarter of $1.47 on sales of $12.8 billion. Analysts were expecting EPS of $1.27 on sales of $11.63 billion. CNH also reported earnings this morning. In the fourth quarter, the company posted EPS of $0.90, excluding restructuring and one-time charges, on sales of $3.76 billion. Analysts were expecting EPS of $0.45 on sales of $3.7 billion.

Both the fertilizer-maker and the two equipment makers benefited from rising food and commodity prices. And all three of the companies expect to increase their profitable ways in 2011.

Potash Corp. announced a three-for-one stock split yesterday and also raised its quarterly per share cash dividend from $0.10 to $0.21, on a split-adjusted basis. In the announcement, the company’s CEO noted that doubling the company’s dividend “reflects the confidence we have in the long-term drivers of our business.”

For 2011, Potash Corp. guided first-quarter EPS to $2.10-$2.70 and full-year EPS to $8.40-$9.60 on a pre-split basis. Analysts were expecting first-quarter EPS of $2.24 and full-year EPS of $8.89, pre-split.

Caterpillar expects 2011 sales to top $50 billion and EPS to be around $6.00. For 2010 the company had sales of $42.6 billion and EPS of $4.15. CNH expects 2011 revenue to rise by up to 10% and operating margins to be in the range of 7.1%-7.9%. In 2010, CNH posted total sales of $14.5 billion. For 2010, ag equipment operating margins were 7.1%, while construction equipment operating margins were -4.5%. CNH’s sales of ag equipment is roughly four times sales in construction equipment.

The continued growth in fertilizer and equipment sales stems from strong demand for potash fertilizer and strong demand for mining equipment. Caterpillar’s outlook is particularly strong because the company does not include sales from Caterpillar’s acquisition of Bucyrus International Inc. (NASDAQ: BUCY), which has not closed yet.

What about Mosaic Co. (NYSE: MOS)?  It blew out earnings earlier in January, and now the Cargill majority stake divestiture may have the company in play for sale.  Shares are still lower as they are under $80.00 versus above $85.00 when this was first announced, but the stock has also recovered from lows under $74.00.  And what about Market Vectors Agribusiness ETF (NYSE: MOO)?  Its shares are up 0.5% at $55.63 versus a 52-week range of $35.56 to $57.02.  As agriculture keeps doing better and as the components keep rising, so do its shares.

Shares of Potash Corp. are up nearly 4% in pre-market trading, while Caterpillar shares are up about 1.5% and CNH has seen no action. If Caterpillar’s pre-market price holds, it would mark a new 52-week high for the company. All three have posted new 52-week highs since the beginning of the year.

Paul Ausick