Peoria, Ill.-based Caterpillar Inc. last week reported a 41-percent increase in profit per share on a 13-percent increase in sales and revenues compared with the second quarter 2005. Sales and revenues in the quarter were $10.6 billion, and profit was $1 billion, or $1.52 per share — all were the highest for any quarter in the company’s history.

"We had a spectacular second quarter with the strongest financial performance we've reported since the 1960s," said Jim Owens, Caterpillar chairman and CEO.

Sales and revenues increased $1.2 billion from second quarter 2005. The increase was a result of $809 million of higher sales volume, $384 million of improved price realization and a $73 million increase in financial products revenues.

Second-quarter profit increased $286 million, or 44 cents per share, from second quarter 2005. The increase was largely due to improved price realization and higher sales volume, partially offset by higher core operating costs to support company growth.

First-half 2006 sales and revenues of $20 billion and profit of $1.9 billion, or $2.72 per share, were also records. Operating cash flow in the first half of 2006 was $1.9 billion, up $952 million from the first half of 2005. This strong cash flow allowed the company to increase capital expenditures to $552 million, acquire Progress Rail, keep its benefit plans well funded, announce a 20-percent dividend increase and repurchase 33.3 million shares.

"I am delighted with what has been accomplished, but we still have work to do. From an operational perspective, record demand has resulted in longer delivery times for many of our products than we, or our customers, would like," Owens said. "We're continuing to work with suppliers and within our factories to remove bottlenecks and increase production for a number of our products. The entire Caterpillar supply chain has responded over the past three years to support our unprecedented growth. 6 Sigma has been a significant positive factor for ramping up production, managing our cost structure and delivering record profitability."

The company raised its outlook for 2006 from previously reported levels. Sales and revenues are now expected to be up 12 to 15 percent from 2005, including about $600 million from the acquisition of Progress Rail. The profit outlook has been adjusted to reflect an estimated profit range of $5.25 to $5.50 per share. The previous outlook reflected sales and revenues up about 10 percent and profit per share of $4.85 to $5.20.

The results were well received in the investment community. UBS Investment Research maintains its price target of $82 per share, which reflects a 5 percent discount to the market multiple based on its estimate of Caterpillar’s 2007 earnings plus $1 per share of excess cash on the balance sheet, according to David Bleustein, analyst for UBS. The stock is rated neutral 1.

"We are entering the fourth year of a recovery that began in mid-2003,” Owens said. “The industries we serve continue to be very strong throughout the world, particularly mining, energy and infrastructure development. While it's tough to predict the future, historically global industry recoveries have lasted six to eight years, and a variety of factors, particularly past under-investment, should help sustain this recovery."