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Caterpillar leads sturdy industrial charge

by Timon Day

Good news for UK industrial engineering companies came from across the pond with Caterpillar, the world’s largest maker of earth-moving equipment, reporting better than expected first quarter figures.

Its shares soared 8.5% to around $83 – their biggest rise for almost eight years – with net profits up 13% at $922 million on sales ahead 18% to $11.8 billion. Admittedly dollar devaluation flattered overseas sales which surged 30% accounting for 58% of the total.

Even so pessimism about a worldwide slowdown following grim figures from General Electric the previous week was dispelled. Emerging economies like Russia, China, India and Brazil continue to be big buyers of bulldozers and excavators.

Though the UK does not boast any companies in the same ball park as Caterpillar ongoing growth in the BRIC countries bodes well for many constituents of our industrial engineering sector. Titan Europe, which makes steel wheels and undercarriages for construction vehicles and tractors, is a good example.

Titan, like Caterpillar, is having a tough time in the States but this has not stopped former parent Titan International from bidding for the 83% of the shares it does not already own. Overseas sales are growing fast especially in Eastern Europe.

Other Brit engineers doing well are those serving the booming oil and gas sector around the world. Weir Group leads the way with its huge range of pumps, valves and flow controls. Spirax-Sarco Engineering is also big in pumps and fluid control equipment. It is particularly strong in Europe and Asia.

Much smaller family controlled Goodwin has a superb reputation for quality and reliability of its pumps and nearly half sales will come from the Asia Pacific regions in 2008.

Another big Brit success story is Fenner, which is the world’s leading manufacturer of conveyor belting primarily used in the mining industry. Output of most metals and coal is rising rapidly as are Fenner’s sales around the world.

This echoes the Caterpillar success which saw huge investment in mining and construction in Russia and Kazakhstan translate into bumper sales. China and India are expected to spend over $1 trillion on infrastructure projects over the next decade.

Admittedly costs are soaring on the back of rocketing oil and metals prices but Caterpillar and the UK companies mentioned above are able to raise prices above the rate of cost increase as demand for their specialised products is so strong.

And don’t write off America. Some economists reckon the US will still grow by 0.5% this year and over 1% in 2009 though this looks anaemic compared to 5% plus growth in BRIC countries which is expected to continue for some years to come.