DOW JONES NEWSWIRES
Caterpillar Inc.'s (CAT) fourth-quarter net income fell 32% on a
steep drop in demand at the end of last year, as the global
economic downturn worsened and some customers cancelled orders.
The heavy-machinery maker projected 2009 earnings well below
analysts' estimates and said it would cut 20,000 jobs, or about 18%
of its work force to reflect the lower demand.
The company's shares were down 11% to $31.71 in premarket
trading, amid the lower-than-expected estimates.
Looking forward, Caterpillar said it expects 2009 earnings of
$2.50 a share on revenue of $36 billion to $46 billion. Analysts
were expecting earnings of $4.27 on revenue of $47.27 billion.
Chief Executive Jim Owens said the company saw booming demand in
the first three quarters, but added, "Then we were whipsawed in the
fourth quarter as key industries were hit by a rapidly
deteriorating global economy and plunging commodity prices."
He said the company encouraged dealers to cut back inventory to
align with falling volume, so it saw "significant order
cancellations" in December.
Caterpillar, which is often seen as a barometer of various
segments of the U.S. economy, posted net income of $661 million, or
$1.08 a share, down from $975 million, or $1.50 a share, a year
earlier.
Revenue increased 6.4% to $12.92 billion.
Owens said 2008 was the company's sixth consecutive year of
record sales and revenue.
Analysts surveyed by Thomson Reuters expected earnings of $1.29
on revenue of $12.77 billion.
The U.S. market, where construction spending has been weak, saw
sales fall 4%. Meanwhile, sales outside North America rose 13% and
made up 64% of total sales, up from 60% a year earlier.
Machinery and engine sales gained 6.7% while the company's
financial arm posted a 2.4% increase in financial-products revenue
despite turbulence in the financial markets.
Caterpillar has been averse to cutting jobs, and last month
announced it would cut more than 800 workers at an Illinois plant,
the first time the company has cut full-time workers on a large
scale for an indefinite period since early this decade.
The company said last month it would cut executive compensation
by as much as 50% for 2009, with lesser cuts for other employees as
it struggles to cope with slumping demand. Most U.S.-based
employees will also be eligible for buyouts amid a hiring
freeze.
The company has benefited from a five-year boom led by emerging
markets in big need for the heavy construction equipment made by
Caterpillar. During that time, the work force rose nearly 50% to
101,000 as revenue more than doubled. Owens said in November that
the company was looking to grow in emerging markets, since it
anticpated recessionary conditions in the U.S., Europe and Japan
this year.
Fears were elevated about whether weakening conditions in the
global construction industry would hurt Caterpillar's results after
rival heavy-machinery maker Komatsu Ltd. (KMTUY) issued a profit
warning Friday, blaming slumping demand.
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.
The company also said it exepcts first-quarter and first-half
profits to be "under severe pressure" amid sharply lower production
volume and a $500 million redundancy charge, mostly incurred in the
first quarter.
Caterpillar said it took a $3.4 billion year-end charge related
to declines in pension asset returns, and the charge caused its
consolidated net worth to drop below the minimum level required in
its $6.85 billion revolving credit facility. The company said its
corporate bank has agreed to its net worth level. The company has
no borrowings under the facility.
The company is hoping for a boost from Pres. Barack Obama's
infrastructure plan, which is expected to raise infrastructure
spending to levels not seen since the 1950s.
-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089;
kerry.grace@dowjones.com
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