Caterpillar Inc. said Monday it will raise prices by up to 2 percent globally for most of its machines starting in January, an increase seen as relatively modest and an indication the company expects slightly stronger demand in 2010.
The world's largest maker of construction and mining equipment said in a regulatory filing the price hike was prompted by "current industry factors and current and expected general economic conditions."
Peoria, Ill.-based Caterpillar has faced slumping demand for its products since the global economy deteriorated late last year. It has responded by laying off thousands of workers and scaling back production.
Last month, the company said its global machinery sales tumbled 48 percent in August, the 11th-consecutive month of declines. The sales drop was led by North America, where sales plummeted 57 percent compared with the same month a year earlier.
Despite the tough market conditions, the move shows Caterpillar expects somewhat stronger demand next year, according to Jeff Windau, an analyst at Edward Jones.
"They're taking a little bit of a longer-term view, anticipating a little bit of economic growth in 2010," he said.
It also reflects an effort by Caterpillar to cover higher costs for raw materials, he said. Prices for materials such as steel, used to build Caterpillar's huge mining trucks and other machines, have edged up in recent months after falling sharply late last year.
Windau noted that the planned increases are more modest than those of recent years, which were closer to 5 percent. And the list price for machines may be higher than what the customer actually pays, he added.
Bill Selesky, an analyst at Argus Research, said he thinks Caterpillar took the step partly because it's starting to see a pickup in sales and because dealer inventory levels are manageable.
"At the end of the day, it's a positive on the overall economy," he said.
In July, Caterpillar reported a 66 percent decline in second-quarter profit on weaker sales of heavy equipment and the cost of job cuts, but it said it saw signs the global economy was starting to stabilize after a prolonged slide.
It also boosted its 2009 profit forecast, citing evidence that government stimulus plans, particularly in China, were beginning to work. Caterpillar's global reach and diverse line of products, which also include bulldozers and cargo ship engines, give a snapshot of industrial strength.
Caterpillar said it plans to release details of the price increase to dealers soon, and that it expects the changes to vary across geographic regions and product lines.
Shares of Caterpillar gained $1.85, or 3.8 percent, to $50.68 in afternoon trading.
