UPDATE: Bucyrus 4Q Net Profit Up 60% With Help From Acquisition

Bucyrus International Inc.'s (BUCY) fourth-quarter profit rose 60% as the company continued to benefit from rising demand for mined commodities and its purchase last year of Terex Corp.'s (TEX) mining equipment business.

Bucyrus's results from the quarter topped expectations and are likely to lend further support to Caterpillar Inc.'s decision to (CAT) buy Bucyrus for $7.6 billion, or $92 a share. The Nov. 15 acquisition--the largest in the construction machinery company's history--is expected to be completed by the middle of this year. Bucyrus builds electric-powered mining shovels, drag lines, drills and underground coal-mining equipment that will complement Caterpillar's own mining machinery.

For the quarter ended Dec. 31, the Milwaukee, Wis., company reported a net profit of $129.9 million, or $1.58 a share, compared with $81.5 million, or $1.07 a share a year earlier. Sales during the quarter rose 91.6% from a year earlier to $1.24 billion.

Excluding one-time charges and special items, Bucyrus earned $1.71 a share. Analysts surveyed by Thompson Reuters expected the company to earn $1.31 a share from sales of $1.15 billion.

The impact of the Terex acquisition was reflected mostly in the Bucyrus' surface mining equipment business. Sales of new equipment and replacement parts more than doubled from a year earlier to $831.1 million. Operating income from the surface business also more than doubled to $160.9 million.

"It's been a tremendously successful acquisition," Chairman and Chief Executive Tim Sullivan said during a conference call Friday with analysts. "We got out of the block well with the Terex product line. They were very well-accepted by the marketplace and with our traditional Bucyrus customers."

Bucyrus' underground mining equipment reported more modest improvement. Total sales from the quarter gained 19.2% from a year earlier to $406.1 million, mostly from replacement parts and service. Operating income from the underground business increased 42.1% to $80.3 million.

Profit from the quarter did not appear to wilt from escalating costs for steel and other materials that have squeezed margins for other manufacturers. Bucyrus' fourth-quarter operating margin of 16.8% was slightly better than its third-quarter margin, but down from a year earlier.

"We expect to hold the margins with material costs," Sullivan said. "We know what's in the backlog and know what we need to buy and are able to stay ahead of" material price increases.

Wall Street views Bucyrus and competitor Joy Global Inc. (JOYG) as key indicators of capital spending on production capacity in the global mining industry. As prices and demand for iron ore, copper, coal and other mined commodities have increased in recent quarters, mine operators have ramped up orders for new equipment and activated machinery that was idled in 2008 when commodity prices collapsed.

"Capital expenditures are up for all the multinational" mining companies, Sullivan said.

Sullivan noted that consumption of mined commodities, particularly copper, rose faster last year than mine output, a condition Sullivan attributed to the increasing difficulty of quickly raising output at establish mine sites where the easy-to-reach material has already been extracted.

"We really see that the commodity market has sustainability for many years," said Sullivan, who will exit the company once the Caterpillar acquisition is completed.

Bucyrus' new orders in the fourth quarter more than doubled from a year earlier to $1.41 billion. Nearly all of the increase came from the surface mining equipment business. The company said the Terex deal accounted for $572 million of the increase.

Bucyrus also said the weaker value of the U.S. dollar against foreign currencies contributed about $1 million to surface equipment orders. Total orders in the underground mining business rose just 9.2% from a year ago as orders for new equipment fell by 20% because of a decrease in longwall equipment orders. Orders for parts and services in the underground business increased 47.2%.

The ratio of new orders to orders shipped during the quarter was 1.14, slightly better than the third quarter and above the 0.9 level of a year earlier. Book-to-build ratios above 1 are considered an indication of demand strength. Bucyrus' orders are closely watched as a gauge of future revenue when orders are converted to shipments.

For all of 2010, Bucyrus' net income rose by just under 1% from 2009 to $315.8 million. Sales increased 38% to $3.65 billion. Sullivan did not provide 2011 guidance because of the pending acquisition of the company.

Bucyrus' stock was recently trading up 0.07% at $91.01 share on light volume.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; robert.tita@dowjones.com

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