Constructing Profits at CAT

Douglas C. Pizac

Caterpillar

Caterpillar makes all types of construction and mining equipment, a great bellwether for the economy with a market capitalization of $23.7 billion.

When Maria spoke to Jim Owens, CEO of Caterpillar he gave us insight as to where the business is going and it was clear we are not out of the woods yet.

Owens said, “It was a challenging quarter in many respects. Caterpillar’s top line sales and revenues were off 41%”. Year-to-date the stock is down nearly 12%.

Caterpillar One Year Chart:

However, Owens said “Caterpillar is positioning itself to be profitable in a very, very difficult market. This is the most severe correction in the global economy and certainly key markets that we serve since the '30s and for our company to sustain profitability I think it’s quite an achievement and one that I’m confident we can continue to deliver on as we go through the year”.

Maria:So looking around the world right now, where would you say are the weakest spots?

Owens:One thing about this downturn certainly, it's been Global in nature and everything has been down and down significantly. Our sales and revenues in the Asia pacific theater were only down 24.5%. Japan and Western Europe are probably in worst economic shape than the United States. And most of the strength is in the emerging markets, particularly China showing signs of a recovery. And we're seeing parts of Latin America, Brazil doing pretty. Parts of the Middle East, Saudi Arabia in particular doing pretty well.

Owens told Maria he sees some signs of stabilization in the credit market. Caterpillar was able to go to the market in Euros and Canadian dollars for the first time in more than a year and got interest rates that were lower than a year ago. Owens sees that as a very positive sign for the global economy. However, there are still a ways to go.

Owens said the prospects over the next several years of a dramatic recovery in these markets is very high and we just want to be sure our company is very well positioned to take advantage of that global macro economic recovery, which we think will begin to get underway, if you will, in the fourth quarter and gain strength next year. The infrastructure and commodities boom certainly powered Caterpillar over the years, Owens added.

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