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Drill-down on Caterpillar’s 4Q/08 earnings report

Highlights cut ‘n’ pasted from today’s Caterpillar earnings release:

2008 sales:

  • Machinery and engines: $48 billion in 2008, up 14 percent from 2007.
  • Financial products: $3.28 billion in 2008, up 9 percent from 2007.
  • Machines sales: $31.804 billion, up 12 percent from 2007
  • Engines sales: $16.240 billion, up 19 percent from 2007

Q1 2009 outlook:

  • While we expect the full year of 2009 to be very challenging, profit in the first half, and particularly the first quarter, will be under severe pressure. In fact, a first-quarter loss is possible.


  • Voluntary and involuntary separations and layoffs of about 4,000 full-time production employees. Depending on business conditions, more layoffs may be required as the year unfolds.
  • Sharp declines in overtime work.
  • Several facilities have shortened workweeks, and thousands of employees have been, or will be, affected by temporary layoffs and full and partial plant shutdowns.
  • Elimination of almost 8,000 temporary, contract and agency workers.
  • Voluntary separations of about 2,500 support and management employees.
  • Additional layoffs or separations of as many as 5,000 support and management employees.
  • Hiring freezes and suspension of salary increases for most support and management employees.

Q&A highlights

  • Q2: What’s your forecast for key commodity prices in 2009?
  • A: We project West Texas Intermediate crude oil will average a little more than $40 per barrel, down from $100 in 2008. Copper prices should average about $1.10 per pound, compared to $3.15 in 2008. Both price forecasts are below prices that we believe would be attractive to launch new projects.

  • Q4: How do you expect the U.S. stimulus package to impact Caterpillar?
  • A: Our initial assessment is that the package might have up to $150 billion in infrastructure-related spending, spread over a two-year period. If enacted quickly, perhaps $50 billion could be spent in 2009. That expenditure would represent about 5 percent of total U.S. construction spending in 2008 and would likely require some increase in equipment purchases to handle the added work in addition to increased utilization of the existing machine population. Other measures in the package, such as tax cuts and actions to improve the housing industry, could indirectly benefit construction.
  • Q13: Outside of Cat Financial, what has been Caterpillar’s recent experience with debt markets? Do you have access to capital?
  • A: The problems in the credit markets have had limited impact on Caterpillar Inc. due to our strong credit rating. We have been able to maintain normal operations and fund our needs. Caterpillar Inc. successfully issued $1.5 billion of long-term debt in early December. The offering generated strong investor demand. There also is strong demand for our commercial paper and we have benefited from very low interest rates on commercial paper.

Disclosure: I do not own shares of Caterpillar.

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Tom Mangan posted at 6:16 am January 26th, 2009 |

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