Caterpillar thriving during hardest times

Caterpillar executives talk a lot these days about how 2007 had the makings of a disaster. Its truck engine and construction equipment sales in North America plunged and the sluggish U.S. economy offered no hope of a quick turnaround.

Yet the Peoria-based company had its best year ever, with profits of $12.3 billion and almost $45 billion in revenue, thanks largely to overseas sales.

"I cannot think of a time in my 27 years with this company that I could rattle off a list of negatives like that about business in the U.S. and follow it with the statement 'We're pleased to report record sales and revenues and record profit for the year,' " Caterpillar investor relations manager Mike Dewalt told analysts.

U.S. heavy-equipment makers have taken refuge in growing economies overseas to ride out the downturn in the American economy. Growing economies abroad have kept American-made industrial and agricultural heavy equipment moving in China, India, the Middle East and elsewhere -- even as U.S. sales have slowed.

Companies such as Moline-based Deere & Co. have added factories abroad or taken other steps to increase their international profiles on the promise a development boom will continue for years.

Deere opened a new tractor plant in Brazil last year to serve expanding farm economies there and in Argentina. Just this week, Caterpillar announced plans to spend $500 million to increase its 50 percent ownership of a Japanese joint-venture with Mitsubishi Heavy Industries Ltd. to 67 percent. And the deal gives Cat the option to buy the rest of the company, Shin Caterpillar Mitsubishi Ltd., which makes loaders and hydraulic excavators.

During past economic slowdowns, few if any of these American heavy-equipment manufacturers would have been diversified enough to do much besides try to ride it out, Morningstar analyst John Kearney said.

Companies that make construction equipment have been especially hurt by the stagnant American housing market. Caterpillar blamed its 11 percent drop in 2007 North American machinery sales in large part on the slowdown in new-home construction. But a lot of overseas economies, most in developing countries, are riding a wave of new construction that is increasing profits at American industrial firms.

"Very large equipment-intensive projects in the Middle East and Russia appear likely to continue strong growth in those regions while China and India remain strong," Citibank analyst David Raso wrote in a January report.

Also, Brazil, Argentina and several other developing countries are becoming agricultural powerhouses. Brazil and Argentina together produce almost half of the world's soybeans, and just over a fifth of the planet's wheat grows in China.

Deere, whose biggest business is agricultural equipment, is a major seller in South America. In its most recent quarter, Deere's profit was up 55 percent to $369.1 million. The biggest reason? A 37 percent increase in sales outside the U.S. and Canada.

Mining-equipment manufacturer Joy Global Inc., based in Milwaukee, this month said its profit rose 19 percent in its most recent quarter to $71.1 million. Just over half of its sales were outside the U.S.

Similarly, crane maker Manitowoc Co., based in Manitowoc, Wis., earned $99.2 million in its most recent quarter, nearly double the year-ago numbers. The company didn't break out its results by region but credited the increase to construction overseas.