Caterpillar Warns '09 Profit Won't Hit Target; Shares Fall

Caterpillar, the world's largest maker of construction and mining equipment, reported its first quarterly loss in 17 years Tuesday, pulled into the red by more than half a billion dollars in charges from its wave of recession-triggered layoffs.

AP

The company also slashed its full-year earnings and sales forecast, sending its shares lower in early trading.

Caterpillar, which has eliminated about 25,000 full-time and temporary positions over the past few months, posted a first-quarter loss of $112 million, or 19 cents a share, compared with a year-earlier profit of $922 million, or $1.45 a share. Sales fell 22 percent to $9.2 billion.

Caterpillar expects full-year earnings of $1.25 a share, before restructuring costs, on sales of $31.5 billion to $38.5 billion. Three months ago, the company forecast profit of $2.50 a share, before restructuring, on sales of $36 billion to $44 billion.

If full-year 2009 sales come in at the $35 billion midpoint of that estimate range, it would represent a 32 percent drop from 2008 — and the worst one-year revenue decline since the 1930s.

The company blamed the cut, and the wide estimate range, on "the high degree of uncertainty" surrounding the global economy, the timing and impact of stimulus measures around the world, and the ability of its dealers to reduce inventory.

Sales of the company's distinctive yellow construction and mining machinery tumbled 29 percent overall, led by a 46 percent decline in sales in Europe, Africa and the Middle East as a result of lower commodity prices and lower oil production.

The results also reflected $558 million in charges Caterpillar booked during the quarter as a result of the layoffs.

Stripping out those costs, Caterpillar said it made 39 cents a share.

On that basis, the results were better than expected. Analysts, on average had expected Caterpillar to report a profit of 2 cents a share, according to Reuters Estimates.

But despite the earnings beat, Jim Owens, the company's chairman and chief executive officer, warned in a statement that it was "extremely difficult to know how our customers will respond during the remainder of 2009."

"They're trying to level out and hold things together and stay profitable for the year before charges," said Eli Lustgarten at Longbow Research. "But the first quarter is the best of the year and it's clearly getting weaker and there's still uncertainty about next year."

Caterpillar said economic activity had dropped over the past six months but that the rate of decline seemed to be moderating. Even so, it predicted world output would continue to fall in the near term.

It said it was taking several steps to conserve cash, including suspending stock repurchases and cutting capital expenditures by $3 billion.

It also said additional job cuts might be necessary, but that they "would likely be handled with flexible and cost-effective rolling layoffs" rather than permanent separations.

"In this environment, liquidity is a major focus," Owens said. "And as a result we've decided to hold more cash than usual."

The company was authorized to issue more than 25 million shares to make a $650 million contribution to improve the funding status of its U.S. pension plan.

That would dilute existing shareholders by 4.2 percent and seems to imply, according to JP Morgan analyst Ann Duignan, that the stock is only worth $26 a share.

Caterpillar shares were last down near $29 in mid-morning trading on Tuesday.

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