Trader Talk

Don't Be Fooled By The Numbers


(* Editor's Note: Bob Pisani is off today, this blog was written by his producer, Robert Hum*)

Stocks are modestly higher this morning – but don’t let that fool you, as many companies reported that the sluggish economy is clearly taking its toll on their operations and will continue to significantly put pressure on their results this year.

Caterpillar’s Q4 earnings fell 32% from last year and missed estimates. The company saw “significant order cancellations, particularly in December” as many of its key industries were hurt by the slowing economy and lower commodity prices. In response to slowing demand, the company is drastically cutting production costs and is slashing 18% of its 112,000-person workforce. The outlook for 2009 is even more downbeat. The company expects earnings to be significantly below analysts’ estimates ($2.50 vs. $4.32 est.) and forecasts disappointing revenues ($36 billion-$46 billion vs. $47 billion est.)

Fellow industrial Eaton posted a sharp 36% earnings drop from last year, but its Q4 EPS of $1.08 came in slightly ahead of analysts’ expectations for $1.04 profit. Overall sales grew 3%, but that was largely a result of the 13% revenue growth through acquisitions the company made. Organic sales fell 4% year-over-year due to a significant slowdown in its automotive units. The company’s CEO expects the slowdown to continue “through at least the second and possibly third quarter.” For the first quarter, it expects breakeven EPS, which is significantly below the consensus forecast of $1.02.

Philips Electronics reported a fourth quarter loss of $1.9 billion, its first quarterly loss in five years. Like fellow electronics markers Sony and Samsung which also posted large losses last week, the company experienced very weak consumer demand, particularly in sales of its televisions. It expects this weak consumer spending to continue into the first quarter and sees current environment leaving “little room for optimism.” The CEO also said he expects the current economic crisis to continue into 2010. Additionally, the company announced it is laying off about 5% of its workforce and has suspended its share buyback program.

Kimberly Clark’s Q4 results disappointed the street as it experienced poor demand for its diapers and paper products. Also hurting its bottom line was the strength of the dollar, which offset the 5% organic growth as a result of higher prices. Giving its outlook for 2009, the company expects volume to improve in the second half and sees earnings of $4.00-$4.20, significantly below the analyst estimate of $4.55. The company however has discontinued giving quarterly guidance due to the current volatility and uncertainty in the marketplace.

Additionally, heavy cost cutting continues amid the current recession, as several large companies announced significant job cuts today:

Jobs Cut

  • Caterpillar 20,000
  • Sprint 8,000
  • Home Depot 7,000
  • Pfizer 8,000
  • Philips 6,000
  • ING 7,000
  • Total Today 56,000



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