The Global Demographic Tailwind

[DewDiligence]

Caterpillar Issues Underwhelming 2010 Guidance

[The (first-time) 2010 EPS guidance of $2.50 and the (unchanged) 2010 sales guidance of $35-41B (10-25% growth vs 2009) are not bad in absolute terms, but the EPS figure is below what a reasonable person might have inferred from the revenue guidance insofar as it implies a 2010 profit margin of only 6-7%. The low implied margin is due in part to CAT’s expectations of weak 2010 sales of such big-ticket items as industrial gas turbines. The $2.50 EPS guidance for 2010 also seems out of step with CAT’s Aug 2009 forecast of $8-12 of EPS in *2012* (#msg-40778863)—unless one thinks management is significantly lowballing the 2010 guidance. Despite the recent selloff, CAT’s share price remains 140% above its Mar 2009 low, and the 2010 P/E is a lofty 21x.]

http://online.wsj.com/article/SB10001424052748704094304575028820708323574.html

›JANUARY 27, 2010, 8:25 A.M. ET
By NATHAN BECKER

Caterpillar Inc.'s fourth-quarter earnings fell by nearly two-thirds, but the heavy-machinery maker said it is seeing demand pick up.

"We're encouraged by signs of improving demand," Chairman and Chief Executive Jim Owens said. "Dealer sales to end users are up, order rates are up, dealer inventories came down in 2009, and we're seeing stronger service parts sales.

"As a result, we are focused on increasing production levels in our plants and with our suppliers," Mr. Owens said.

Nonetheless, Caterpillar forecast 2010 earnings below Wall Street estimates. The company sees earnings of about $2.50 a share on a revenue increase of 10% to 25%. Analysts surveyed by Thomson Reuters expected a profit of $2.71 a share on 11% revenue growth.

Caterpillar's stock slid in early trading. Over the past year, shares have risen 73%.

In October, the company said it likely had seen the bottom in sales, and analysts have echoed those sentiments of late. Sliding demand for construction had wreaked havoc on sales for Caterpillar, which makes heavy equipment used for digging and building. Delays in getting U.S. government money to highway and other projects mean the stimulus has yet to pump up demand for Caterpillar's earth movers.

Caterpillar reported a profit of $232 million, or 36 cents a share, down from $661 million, or $1.08 a share, a year earlier. Results for the latest quarter included charges of 5 cents a share. Revenue dropped 39% to $7.9 billion.

Analysts polled by Thomson Reuters had most recently forecast earnings of 28 cents a share on $8.11 billion in revenue.

Machinery and engine sales dropped 41%, while the company's financial arm saw a 12% decrease in financial-products revenue.‹