Caterpillar 4th-quarter profit drops and company issues cautious outlook with demand growing

Caterpillar 4Q profit tumbles; cautious outlook

Caterpillar said Wednesday that its fourth-quarter profit tumbled as demand remained weak, but the maker of mining and construction equipment expects sales to rebound in 2010 as the economy improves and dealers replace inventory.

Leading the way will be China and other developing countries where an increasing share of the company’s yellow-and-black machinery is sold.

Though sales will likely pick up sharply next year, Caterpillar’s profit expectations for the year, about $2.50 per share, fall short of what many analysts were looking for.

Caterpillar’s shares fell as much as 8.6 percent Wednesday but rebounded to close at $53.44, down 4.3 percent.

Mike DeWalt, the company’s director of investor relations, said he thinks Wall Street overestimated Caterpillar’s earnings capability after the company said in October that it expects revenue to climb 10 percent to 25 percent in 2010.

“Basically, they got a little ahead of expectations because we weren’t able to provide them profit guidance in the third quarter,” DeWalt said.

Last year was a terrible one for Caterpillar, which hadn’t seen sales and revenue slide so badly since the 1940s.

The company’s outlook signals a slow economic rebound, particularly for developed countries like the United States.

How Caterpillar gauges the health of the economy is an important indicator for anyone seeking clues about what may be ahead.

The company’s yellow-and-black machinery is sold in so many places and used by so many industries, how Caterpillar fares in any given quarter can serve as proxy for global economic health.

Caterpillar, based in Peoria, Ill., predicted 3 percent growth in the global economy in 2010, but cautioned that the central banks in developed countries could send the economy back into recession if they raise interest rates too quickly.

Caterpillar says sales in China have rebounded strongly, but markets in North America, Europe and other developed regions continue to struggle. The company says it expects growth of more than 10 percent in China and 8 percent in India in 2010. That’s much more robust than the 3.5 percent growth Caterpillar predicts for the United States and 1 percent growth in Europe.

Edward Jones analyst Jeff Windau said Caterpillar performed well in 2009 and controlled its costs in response to the recession. But the company’s cautious view of 2010 put pressure on the stock price on Wednesday.

“I think what everyone was looking for was a little more optimism on the earnings side for 2010,” Windau said.

The company slashed 19,000 full-time jobs and eliminated about 18,000 contract and part time workers last year as customers stopped buying equipment to ride out the recession with the inventory on hand. But the company said Tuesday it had recalled more than 500 workers to respond to increased demand in late 2009.

Caterpillar said dealers cut new machine inventories by more than $3.3 billion and new engine inventories by more than $600 million last year.

Inventories are more in line for the current economy as a result and with the huge job cuts from 2009, the company said it will be in a good position when the recession loosens its grip.

“We expect 2010 will be a better year than 2009, and Caterpillar is in an excellent position to benefit from growth in the world economy,” Chairman and CEO Jim Owens said in a statement.

Caterpillar’s earnings in the fourth quarter slid 65 percent to $232 million, or 36 cents per share, compared with $661 million, or $1.08 per share, a year ago. Removing costs like those related to the thousands of job cuts, profit was 41 cents per share, beating the 28-cents-per-share estimate of analysts. These estimates normally exclude one-time items.

Total sales and revenues for the quarter fell 39 percent to $7.9 billion from $12.92 billion. The performance fell short of Wall Street’s $8.11 billion view.

Full-year profit tumbled to $895 million, or $1.43 per share, from $3.56 billion, or $5.66 per share, in the previous year. Adjusted earnings were $2.18 per share.

Total sales and revenue for 2009 declined 37 percent from $51.32 billion — the biggest single-year percentage decline since the 1940s.

AP Business Writer Michelle Chapman contributed to this report from New York.

On the Net:

Caterpillar Inc.: www.cat.com