Caterpillar CEO Calls For More Spending In Highway Bill
05 August 2009 - 9:01AM
Dow Jones News
Caterpillar Inc. (CAT) Chairman and Chief Executive James Owens
said Tuesday that Congress should expand the upcoming federal
transportation funding bill to supplement the infrastructure
spending in the federal economic stimulus legislation approved
earlier this year.
Owens, a member of the Obama Administration's Economic Recovery
Advisory Board, said unemployment in the construction sector
continues to run at about 18%. He said he's relayed his ideas to
administration officials, including Lawrence Summers, director of
the President's National Economic Council.
"They understand we need some sustained fiscal stimulus," Owens
said in remarks to reporters following a presentation to Wall
Street analysts at the company's headquarters in Peoria, Ill. "The
country needs it. We're not out of the woods completely."
Congress is scheduled to begin deliberations this fall on a new
multi-year transportation funding bill. Owens said roads, bridges,
rail routes and other infrastructure in the U.S. are suffering from
decades of under-investment and deferred maintenance.
Owens noted that infrastructure spending has lagged economic
growth by $3 trillion in the past 40 years, a reversal from earlier
periods, when infrastructure spending grew at a rate that was
either equal to or greater than annual U.S. gross domestic product
growth. He said increased spending on infrastructure is inevitable
if the U.S. wants to remain competitive with other developed
countries.
"If we don't step up the investment here, we'll clearly be at
third-world standards in a decade or two," Owens said.
Caterpillar is the world's largest manufacturer of mining and
construction equipment by revenue. Despite rapid expansion in
overseas markets in recent years, North America remains its largest
single market, accounting for 40% of the company's machinery sales
in 2008.
Owens anticipates the U.S. market staging the strongest rebound
in machinery sales of the developed countries coming out of the
global economic slump.
"The U.S. market for us is going to have a lot of recovery
growth for us under any recovery," he said.
The building and commodities boom powered Caterpillar for five
years - helping it more than double its annual revenue from 2002 to
2007. Overseas sales offset a slumping U.S. housing construction
market early in 2008, but by late in the year, a pullback in
commodities prices and sluggish global economic growth hurt
results.
Under the global economic recovery scenario outlined by
Caterpillar Tuesday, the company's sales could approach $60 billion
by 2012, with earnings per share of $8 to $10. The company affirmed
it outlook for 2009 of profit in a range of 40 cents a share to
$1.50 a share, on sales and revenue of $32 billion to $36
billion.
Owens expects low interest rates, contained inflation, and
massive doses of government-sponsored economic stimulus spending
throughout the world to be catalysts for higher machinery sales
beginning in 2010.
"The global economy can't grow without the mining equipment, the
construction equipment and power-generating equipment that our
company is positioned to provide," he said.
Owens forecast that U.S. GDP will increase by 2% in 2010,
following a 3.2% decline this year. He sees global GDP growth of
2.2% next year, with the greatest growth occurring in China and the
slowest growth in Europe and Japan.
Nevertheless, Owens added that significant risks remain that
could undermine a recovery in the U.S. and elsewhere, including
higher interest rates, restricted access to bank loans and
restrictive trade policies. He estimated that risk for the current
recession continuing into next year is about 25%.
Last month, Caterpillar reported that its second-quarter profit
fell 66% amid slumping machinery and engine sales, as job-cut
charges further reduced earnings. Caterpillar has reported lower
profits in three of the past four quarters and swung to a loss in
the other quarter on restructuring charges.
Caterpillar's stock closed up 6.1%, at $47.89.
-By Bob Tita, Dow Jones Newswires; 312-750-4129;
robert.tita@dowjones.com