Caterpillar's Loss Not a Good Harbinger of Economic Things to Come

I won’t posit that as “so goes Caterpillar, so goes the world’s economy” but its outlook for the rest of the year probably functions as a pretty good if unconventional indicator. In that case, things don’t look too rosy.

From the WSJ, here’s what the company had to say this morning about first quarter results and what it sees going forward:

The Peoria, Ill., company said the economic environment has deteriorated despite government stimulus efforts and a relatively bullish stance on commodity prices. Caterpillar expects the global economy to decline at least 1.3% this year, worse than its earlier expectations.

A great deal of uncertainty exists in the global economy, making it extremely difficult to know how our customers will respond during the remainder of 2009,” Chairman and Chief Executive Jim Owens said in a statement.

The heavy-equipment maker reported a first-quarter net loss of $112 million, or 19 cents a share, compared with year-earlier profit of $922 million, or $1.45 a share. Excluding $558 million in costs for layoffs and plant closings, the company would have posted a 39-cent profit. Sales fell 22% to $9.23 billion. The mean estimate of analysts surveyed by Thomson Reuters was for earnings of four cents a share on revenue of $8.54 billion.

Interestingly, the company said that the U.S. fiscal stimulus program is insufficient to offset the decline in private domestic demand. It did, however, indicate that it was more optimistic about recovery overseas, particularly in China.

Once again, evidence that despite the big numbers being thrown around in Washington too little is being directed where it would do the most good.

Caterpillar cut its 2009 profit forecast in half to $1.25 a share on revenue of $35 billion. In January, the company said it expected to earn $2.50 a share on sales of about $40 billion.

Comments

[donzelion:]

"...the U.S. fiscal stimulus program is insufficient to offset the decline in private domestic demand....once again, evidence that despite the big numbers being thrown around in Washington too little is being directed where it would do the most good."

The WSJ seems like interesting "analysis" - but

(1) Why would routing stimulus money to CAT do more good than, say, GM, or any another major corporation?
(2) One of the biggest recessions in decades is afoot - why would anyone expect the demand to remain unchanged from '07 or '08?
(3) Communist China might replace private sector demand with public sector stimulus, but would you really want that in America?

Apr 21 03:47 PM

[doubleguns:]

I believe the issue was not clarified well. I understood it to mean nothing is happening with infrastructure, hence CAT, since such a teeny tiny amount of stimulas money went to infrastructure.

I guess it was expected CAT would do well off the stimulas.

I agree though, what were they thinking? We are in THE great recession..


On Apr 21 03:47 PM donzelion wrote:

> "...the U.S. fiscal stimulus program is insufficient to offset the
> decline in private domestic demand....once again, evidence that despite
> the big numbers being thrown around in Washington too little is being
> directed where it would do the most good."
>
> The WSJ seems like interesting "analysis" - but
>
> (1) Why would routing stimulus money to CAT do more good than, say,
> GM, or any another major corporation?
> (2) One of the biggest recessions in decades is afoot - why would
> anyone expect the demand to remain unchanged from '07 or '08? <br/>(3)
> Communist China might replace private sector demand with public sector
> stimulus, but would you really want that in America?

Apr 21 05:04 PM

[asaf123:]

Good article. Caterpillar is as close to a global industrial bellweather as any. They manufacture everything from Diesel Engines, Generators, Construction and Mining Equipment to Agricultural equipment.

As a Capital Purchase in their customers income statement, CAT's comments indicate that corporate capital spending remains subdued, because most likely Corporate CEO's are not anticipating a V shaped recovery. Just as unemployment is a lagging indicator, business spending is a leading indicator (and also accounts for 18% of US GDP, Consumer is 70% and Govt is 12%).

Therefore, CAT's caution is a double whammy, indirect impact of corporations remaining cautious on the recovery, and direct impact of lower corporate CAPEX, which is a part of the US GDP.

Apr 21 05:05 PM

[wineo:]

Be patient grasshopper, or was that Catarpillar. The destruction in Iraq, Afghanistan, and wherever else we hit next, will eventually benefit you.

Apr 21 05:28 PM

[Stone Fox C...:]

Its very telling though that the stock went up today. When I heard the original numbers on CNBC while getting ready today, I though for sure Terex (TEX) would be down huge today. Surprise, surprise. Stocks are acting good to bad news.

Apr 21 06:21 PM

[zagrebzagreb:]

I'm surprised that experts still expect companies like CAT to benefit from gov't spending...

CAT - like much of our economy - was dependent on a bubble for its huge growth. It cannot recreate those heady days of double-digit growth without a similarly outsized market, which has now been demonstrated unsustainable and fatuous.

In other words, I'm glad the company isn't returning to form... The reallocation of resources in the coming years shouldn't favor more inane building, or the companies that profit from it.

Apr 21 06:37 PM

[Third Party...:]

"...the U.S. fiscal stimulus program is insufficient to offset the decline in private domestic demand....once again, evidence that despite the big numbers being thrown around in Washington too little is being directed where it would do the most good."

If you will remember, President Obama visited CAT earlier in the year shortly after CAT announced 20,000 layoffs. In his speech, Obama misquoted CEO Owens in saying that they agreed that the stimulus would alloy CAT to rehire many of its employees. In reality, Owens said a reasonably packaged stimulus would allow that rehiring (not necessarily Obama's Stimulus).

I imagine this chatter is a poke back at the administration.

Apr 21 08:04 PM

[Tom Lindmark:]

Thanks for that item about the misquote. I hadn't heard that before.


On Apr 21 08:04 PM Third Party Guy wrote:

> "...the U.S. fiscal stimulus program is insufficient to offset the
> decline in private domestic demand....once again, evidence that despite
> the big numbers being thrown around in Washington too little is being
> directed where it would do the most good."
>
> If you will remember, President Obama visited CAT earlier in the
> year shortly after CAT announced 20,000 layoffs. In his speech,
> Obama misquoted CEO Owens in saying that they agreed that the stimulus
> would alloy CAT to rehire many of its employees. In reality, Owens
> said a reasonably packaged stimulus would allow that rehiring (not
> necessarily Obama's Stimulus).
>
> I imagine this chatter is a poke back at the administration.

Apr 21 08:55 PM

[Ricard:]

Tom,

I'm not sure why you consider Caterpillar an unconventional indicator for US economic activity. Its business is at the heart of nearly every other US business, i.e., building something with heavy equipment. If Caterpillar's outlook is positive (as it is in China), then people are making plant investments and larger capital purchases. The uncertainty regarding America mirrors the uncertainty in Caterpillar's earnings projections. The correlation is very strong.

Apr 21 09:50 PM

[Tom Lindmark:]

Ricard,

The statement was meant to differentiate Cat's results from what we normally associate with economic indicators. Things like consumer confidence and employment. Your comment is absolutely valid.


On Apr 21 09:50 PM Ricard wrote:

> Tom,
>
> I'm not sure why you consider Caterpillar an unconventional indicator
> for US economic activity. Its business is at the heart of nearly
> every other US business, i.e., building something with heavy equipment.
> If Caterpillar's outlook is positive (as it is in China), then people
> are making plant investments and larger capital purchases. The uncertainty
> regarding America mirrors the uncertainty in Caterpillar's earnings
> projections. The correlation is very strong.

Apr 21 10:30 PM

[tunaman4u2:]

Come on Tommy drink the Kool-Aid like Cetin...
Certainly home prices will stabilize and go up very soon, unemployment isn't a big deal. We dont have enough retail or residential space so we need to build! All those idle used CATs out there won't hit the market at a discount & surely CAT dealers will be seeing a surge in sales in the next few months.

Just wait until China mass produces CATs for 1/4 the price in a few years... thats the future of economic recovery!

Apr 21 10:44 PM

[Moon Kil Woong:]

Actually, I own CAT and don't mind keeping it through the recession. Unlike GM etc they are well managed and aware of the market. They also should benefit in case commodity prices and demand happen to rise sharply. Apparently others agree.

Their report only points out the obvious. They have reasonable expectations and are brutally honest. If only we could find these traits in the people we hire for the Fed and Treasury we would be a lot better off.

Don't buy this stock as a Obama play or due to hype about growing corn for green energy, etc. Catapillar's management has been quite honest letting their owners (shareholders) know such demand is not guaranteed and doesn't offset recessionary pressures.

Apr 21 11:07 PM

[expat in China:]

Caterpillar is working hard for its position in the eastern markets. A small place in Guangxi, "Liugong Machinery Company" is eating catapillars lunch!

wrightreports.ecnext.c...

Apr 21 11:12 PM

[No1:]

I don't want what people are talking about when they say the economy is doing bad.

If you are a Washington lobbyist, you are doing VERY WELL. :-p

Apr 21 11:24 PM

[MarvinMBA:]

Ad the downdraft deepens Cats results will worsten. Where is the stimulus promised for roads and intrastructure imporvements? This is what we need to get some action into Cats business. The normal constrution business is down the tubes and will remain that way until the Depression is over. In general were in deep SXXXT right now. Inflation is next on the horizon. Keep short...MarvinMBA

Apr 21 11:57 PM

[user 385544:]

so is Komatsu!


On Apr 21 11:12 PM expat in China wrote:

> Caterpillar is working hard for its position in the eastern markets.
> A small place in Guangxi, "Liugong Machinery Company" is eating catapillars
> lunch!
>
> wrightreports.ecnext.c...

Apr 22 12:31 AM

[Lee Eugene ...:]

Come on!!! CAT restated estimates down by 50% earlier this year. 50%, when was the last time you saw that on a blue chip? Management is good at one thing, sandbagging estimates so they can hit their numbers and stabilize the stock. And I am not complaining! It is a great strategy opposed to trying to lie to investors about how things are getting better and then blaming the economy when the EPS is short. Just look at BA today. They wouldn't know what they are going earn if God came down and did the numbers himself.

Apr 22 08:57 AM

[Alan Young:]

It was not long ago that CAT could do good business in China, and would have benefitted from the big stimulus in infrastructure building there. Now they're complaining-- it looks to me like they've lost market share where it would have helped them the most.

Apr 22 09:53 AM

[Windsun33:]

You are missing the point I think. CAT is saying that far too little went into infrastructure - which many analysts and regular folks agree with.


On Apr 21 03:47 PM donzelion wrote:

> "...the U.S. fiscal stimulus program is insufficient to offset the
> decline in private domestic demand....once again, evidence that despite
> the big numbers being thrown around in Washington too little is being
> directed where it would do the most good."
>
> The WSJ seems like interesting "analysis" - but
>
> (1) Why would routing stimulus money to CAT do more good than, say,
> GM, or any another major corporation?
> (2) One of the biggest recessions in decades is afoot - why would
> anyone expect the demand to remain unchanged from '07 or '08? <br/>(3)
> Communist China might replace private sector demand with public sector
> stimulus, but would you really want that in America?

Apr 22 11:04 AM

[expat in China:]

CAT, hates its bank more than the rest of us!

Apr 23 12:29 AM