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Caterpillar Inc. earnings: Wonderful 2008; woeful 2009

Caterpillar Inc. is a assuming a 20 percent reduction in sales for 2009, and 50-plus percent reduction in profits. Perhaps the scariest thing in this morning’s earnings report:

We expect 2009 will be the weakest year for economic growth in the postwar period. We are expecting recessionary conditions to persist in most of the world throughout the year, with no growth in the world economy.

So, don’t get your hopes up.

The other day I posted a list of bullet points to look for in this morning’s earnings release. Let’s revisit:

  • Access to financing: Caterpillar had buyers for a bunch of bonds in December, and its credit rating ensures it has access to as much financing as it may need.
  • Order backlog: Plunged in the fourth quarter and ended the year at $14.7 billion, well below the year-end 2007 level of $17.8 billion. Demand for giant mining trucks is easing, but customers are primarily delaying orders rather than canceling them.
  • Commodities: Prices are down across the board, which is pinching much of Cat’s customer base. Steel prices hurt Cat last year but presumably that’ll be less of an issue this year.
  • Labor: 20,000 jobs gone by the end of the first quarter of 2009.
  • Infrastructure: Cat called stimulus plans a step in the right direction, but didn’t expect to see much improvement to Cat’s bottom line until late in 2009.
  • Green energy: Didn’t see anything here, but it could come up in the conference call.

I’m at least somewhat disappointed that Caterpillar didn’t issue an earnings warning before this morning. When you expect your profits to fall by over half in the next year, investors deserve a heads-up.

A few quotes from the headlines:


“The results were worse than we were even anticipating, and we had lowered our expectations considerably,” Kristine Kubacki, a St. Louis-based analyst with Avondale Partners LLC, said in an interview. Comments about order cancellations in December “were particularly worrisome,” she said.

Note: Cat says it requested that dealers cancel some orders to avoid inventory build-up.

Wall Street Journal:

As the financial crisis has continued to worsen in recent months, Caterpillar’s ability to issue corporate bonds has been hurt. Its finance arm has been driven to offer sharply higher yields on recent bond sales to lure investors.

At least Caterpillar is finding buyers besides the U.S. government.

Disclosure: I own no shares of Caterpillar Inc.

4 comments | Permalink | Tags:
Tom Mangan posted at 7:06 am January 26th, 2009 |

4 Responses to 'Caterpillar Inc. earnings: Wonderful 2008; woeful 2009'

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  1. Mahkno says:

    I am trying to discern if that is 20,000 more or… they are just acknowledging having eliminated 20,000 already? There is another article citing the removal of 17,000 workers (agency and otherwise) and 2500 through severance packages.

    Permalink | Posted January 26th, 2009, at 5:06 am
  2. tom says:

    It said 20k by the end of Q1 ’09, so presumably some of the already announced layoffs are included.

    Permalink | Posted January 26th, 2009, at 5:10 am
  3. Mahkno says:


    “The company said it would cut an additional 5,500 workers, bringing to 20,000 the number it will cut by the end of March”

    So…. 5500 more layoffs are coming.

    Permalink | Posted January 26th, 2009, at 5:52 am
  4. Mahkno says:

    *not necessarily all in Peoria tho.

    Permalink | Posted January 26th, 2009, at 5:53 am

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