The Global Demographic Tailwind

[DewDiligence]

CAT Reports 3Q09 Results, Forecasts Strong Recovery

[CAT is the world’s largest manufacturer of construction and excavation equipment and is thus a proxy for global economic activity and a beneficiary of The Global Demographic Tailwind. 3Q09 was a terrible quarter, but CAT says the worst has been seen. Cost-cutting during the economic downturn greatly lowered the breakeven revenue level; this plus CAT’s high operating leverage can produce strong profits at revenue levels well below what was seen during the peak of the business cycle circa 2006-2007. Thus, CAT projects vastly higher EPS of $8-10/sh in 2012 (#msg-40778863). The share price is up 170% from its low in early 2009.]

http://online.wsj.com/article/SB10001424052748704500604574484971460132620.html

›OCTOBER 21, 2009
By BOB TITA

Caterpillar Inc. on Tuesday provided one of the most bullish assessments for a global economic recovery as the U.S. heavy-equipment maker exceeded third-quarter profit expectations by a wide margin.

The company said it was preparing for a recovery that could be "rapid" after cutting costs to match the slide in demand for its earth-moving and construction equipment.

Caterpillar forecast global gross-domestic-product growth of 3% in 2010, led by 5% growth in the developing economies that drove sales during the prolonged commodity-led boom.

"We believe the third quarter marked the low point for Caterpillar sales and revenues in what has been the toughest recession since the 1930s," said Chairman and Chief Executive Jim Owens. "We are seeing encouraging signs that indicate a recovery may be under way."

Inventory destocking sliced 44% from sales in the quarter ended Sept. 30, but revenue is expected to climb 10% to 25% next year. Earnings also are expected to rise as the company completes plans to cut production and shed more than 17,000 employees.

Caterpillar's outlook is more bullish than many in the manufacturing sector, relying in part on the impact of government stimulus programs peaking in the first half of next year, with the prospect of additional support measures and a recovery in the U.S. housing market.

With the economy still expected to remain fragile well into 2010, the industry bellwether's main concern is that governments will start easing rates and reducing balance sheets too quickly, despite Caterpillar's contention that spare capacity makes inflation a minimal threat.

The company reported third-quarter earnings of $404 million, or 64 cents a share, down 53% from $868 million, or $1.39 a share, a year earlier. Revenue fell 44% to $7.3 billion from a record $12.98 billion. Analysts had expected earnings of six cents a share on $7.48 billion in sales.

Caterpillar narrowed its profit range for 2009 and predicted revenue this year would be about $32.5 billion, the lower end of its earlier range.

The company now expects to earn $1.85 a share to $2.05 a share, excluding costs for layoffs and idle plants, compared with its previous prediction of $1.15 a share to $2.25 a share.‹