Caterpillar beats expectations but still suffers first overall loss in 17 years

DECATUR, Apr 22, 2009 (Herald & Review - McClatchy-Tribune Information Services via COMTEX) -- CAT | Quote | Chart | News | PowerRating -- In first-quarter results of startling contradictions, Caterpillar Inc. managed to beat industry analysts expectations for earnings but saw massive layoff costs and falling demand stall its profit engine, producing the company's first overall loss in 17 years.

Caterpillar on Tuesday reported a loss of 19 cents per share on sales and revenues of $9.225 billion, off 22 percent from sales and revenues of $11.796 billion in the first quarter of 2008. But for layoff charges of $558 million, however, Caterpillar would have made a profit of 39 cents per share, far beyond the consensus of expert forecasts that predicted profit of about 8 cents per share.

At least one analyst believes Caterpillar is now gearing up for more job cuts, as it confronts the remainder of what the company said Tuesday threatened to be "a very tough year."

To date, Caterpillar has cut more than 20,000 jobs, including about 1,100 in Decatur, where the company builds the world's biggest mining trucks and huge motor graders, among other equipment.

But world demand for trucks and machines essential for mining and road building went off a cliff as the recession hit home and orders collapsed. The 2009 first-quarter results for "machinery," Caterpillar's bread and butter, told the story: Those operations turned in a loss of $508 million, compared to a profit of $626 million in the first quarter of 2008.

Perhaps surprisingly, Caterpillar was able to charge more money for the equipment it did sell and made a reduced profit from its financing arm. It wasn't enough, though, to keep up with declining orders and the costs of laying people off.

Caterpillar Chairman and CEO Jim Owens expected profits in 2009 to "decline significantly" from 2008, with earnings of maybe 50 cents a share on sales, and revenues of perhaps $35 billion. While Owens didn't talk job numbers, he said profit figures reflected being dragged down by additional layoff expenses that will add more than $140 million to the $558 million already spent.

Mark Koznarek, a capital goods analyst with Ohio-based Cleveland Research, said Caterpillar's laser focus on cutting expenses rapidly was good news for investors but bad news for workers. He predicted that, based on the costs associated with the jobs cut so far, Caterpillar was preparing to shed another 3,000 jobs companywide this year.

"But it's certainly not Caterpillar's fault here," Koznarek added. "The market is just awful, and demand has collapsed on a worldwide basis."

In a conference call about the results, Owens acknowledged the disrupted lives of workers caused by the previous layoffs and said the $558 million cost involved had hurt the company.

"It is certainly a considerable expense to provide employees with financial assistance and transitional support, but certainly it's the right thing to do," he added.

There were some bright spots amid Caterpillar's gloom and doom, however. Owens said government stimulus spending around the world was helping, and banking and credit problems appeared to be stabilizing.

"While this is going to be a very tough year, this recession will end, and growth will resume," he added.

That optimism was shared by Jim Minton, a retirement planner for Decatur-based Investment Planners Inc., who follows Caterpillar's fortunes.

"One thing you always hear about the company is that Caterpillar is going to go with the price of copper, and we've been seeing the copper price rebounding fairly strongly," he said.

Minton added that there were other signs the wider economy was starting to at least slow the pace of descent. "Is this the bottom? I feel like we're getting close," he said.

Caterpillar shares climbed 91 cents, or 3 percent, to close at $31.39 Tuesday. During the quarter, the stock price fell about 37 percent, dipping briefly to $21.71, its lowest point in six years.

The Associated Press contributed to this report.

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