3rd UPDATE: Caterpillar 2Q Down 66%; Raises '09 EPS Forecast
July 21 2009 - 1:02PM
Dow Jones News
Caterpillar Inc. (CAT) reported a 66% fall in second-quarter
profit Tuesday but raised its full-year guidance as aggressive
cost-cutting started to yield results.
The world's largest construction and mining equipment maker by
sales lifted its 2009 forecast to $1.15 to $2.25 a share despite
trimming revenue guidance to $32 billion to $36 billion. In April,
the company projected earnings $1.25 a share on revenue of $31.5
billion to $38.5 billion.
In recent trading, Caterpillar shares were up 6.38% at $38.99 a
share.
Nevertheless, the Peoria, Ill., company cautioned that demand
for machinery remains weak. It expects the global economy to
contract by more than 2% this year and warned that recent upbeat
indications about an economic recovery may not last.
The company predicted its third-quarter sales will be the
weakest of the year, as dealers hold off ordering new equipment to
eliminate an estimated $1.5 billion of inventory during the second
half of 2009. It's anticipating widespread temporary layoffs and
rolling factory shutdowns to lower machinery production.
Caterpillar said a loss from the quarter or flat earnings are
possible.
"We're dealing with the worst recession since the Depression,"
Chairman and Chief Executive said Jim Owens said during a
conference call with analysts. "The rolling-layoff concept gives us
a lot of flexibility to take out costs and to take advantage of
[sales] opportunities as they present themselves."
Owens said the company is seeing signs of stabilization in the
global economy that could serve as the foundation for an eventual
recovery. He said Caterpillar customers are being helped by
improved access to credit markets and $1.7 trillion in
government-sponsored economic stimulus spending on infrastructure
construction projects worldwide.
For the second-quarter, Caterpillar reported income of $371
million, or 60 cents a share, down from $1.1 billion, or $1.74 a
share, a year earlier.
The latest results included $85 million in costs related to job
cuts. Excluding those items, earnings were 72 cents a share. Net
revenue decreased 41% to nearly $8 billion. Analysts polled by
Thomson Reuters expected earnings of 22 cents and revenue of $8.86
billion.
Machinery sales in the quarter tumbled 49%, and engine sales
slid 32%. Meanwhile, revenue from the company's customer and dealer
finance operation declined 13% to $721 million. The company said it
has shed 17,100 full-time employees since the end of 2008 and cut
more than 17,000 temporary and part-time workers.
Caterpillar also has imposed short-term layoffs for the
remaining employees and suspended pay raises for nearly all support
and management employees.
The company expects general administrative costs to decline 25%
this year, along with a 15% reduction in research and development
spending.
The infrastructure and commodities boom powered Caterpillar for
about five years - helping it more than double its annual revenue
from 2002 to 2007 - but collapsed late last year.
Analysts at Bank of America Merrill Lynch said Monday that
demand for construction machinery made by Caterpillar likely
reached a bottom during the second quarter and will begin a
recovery during the first half of next year.
But other analysts said Tuesday's report reinforced their
cautiousness about the company.
"They're hardly saying it's a boom time," said Lawrence De
Maria, an analyst with Sterne Agee & Leach Inc. "It's not like
the whole ship is turning around. It's still a 2011 [recovery]
story to me."
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com
(Kerry Grace Benn and John Kell contributed to this report)