CAT

Caterpillar Reloaded

06/10/2009 by Research Reloaded

A summary digestion of Caterpillar's recent 1Q09 earnings and conference call. For those who want to get an understanding for what is happening, but using less time.

The result in brief

Caterpillar (CAT) earned $0.39 per share, excluding redundancy costs of $0.58 per share, down from an adjusted US$1.44 per share in 1Q08. Revenue fell 22% to US$9.225bn. Nevertheless, operating cash flow was actually up, to $895m vs. $706m in 1Q08, due to substantial inventory reductions of US$764m vs. an inventory gain of US$864m in 1Q08. Research Reloaded Free cash flow for 1Q09 was $450m vs. only US$61m in 1Q08. Thus on a cash flow basis, CAT remained strong due to effective management into the down cycle.

Guidance was for 2009 revenue of US$35bn +/- 10% and 2009 profit of $1.25 per share excluding redundancy costs expected to be $0.75 per share.

US Manufacturing - New Orders Switch to Growth

06/10/2009 by Research Reloaded

In terms of the state of manufacturing in a downturn, Caterpillar (CAT) had a striking quote in their last earnings call.

And generally speaking, if you go back to the '80s, close to half the world's manufacturers didn't make it through that downturn successfully. And the strongest got stronger, and we were one of those. I would expect that we will strengthen our position going through this downturn.”

The state of the ISM

The ISM's PMI hit some nasty lows in the 80's downturn, which were recently hit again in January during the current downturn, before seeing a rebound to the recent level of 42.8%, which still implies contraction, just less than before. Now, is the above Caterpillar quote correct, was it really almost half of manufacturers that ran into serious trouble? It would seem that this time around, things haven't been so bad. But feel free to enlighten me.

Interesting inflection point for New Orders

Most recently, if we look at the latest ISM report released June 1st, we see that there has been an interesting inflection point. New Orders growth went positive, continuing its improvement since December 2008, but rather shrinking by smaller amounts, it is now growing. Customer inventories have also continued a 2-month drop, which is a positive for future manufacturing orders.

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