Doesn’t anybody read these things?

Caterpillar is a Dow Jones Industrial Average component – it has been for quite some time.  They typically are a good indicator of the overall economy.

They released earnings yesterday, and the headlines read as follows:

  • Caterpillar Ups Forecast on Robust Growth
  • Stock Futures Extend Gains on Caterpillar Results
  • Caterpillar and Whirlpool Breed Optimism
  • Caterpillar Moving Ground in Emerging Markets
  • Caterpillar, Whirlpool Show Economy on the Mend
  • Caterpillar Digs its Way Back
  • Strong Caterpillar Results, Outlook Lifts Stocks

Ok, now, here’s the actual news release from Caterpillar.  My comments are bolded in red:

PEORIA, Ill., April 26 /PRNewswire-FirstCall/ — Caterpillar Inc. (NYSE:CATNews) today reported a first-quarter profit of $0.36 per share, up $0.55 per share from a loss of $0.19 per share in the first quarter of 2009.  Excluding a tax charge of $90 million related to the recently signed U.S. health care legislation (A red herring – An unnecessary and overtly political statement) , profit in the first quarter of 2010 was $0.50 per share.  The loss of $0.19 per share in the first quarter of 2009 included $558 million of employee redundancy costs (i.e. we eliminated jobs).  Excluding redundancy costs, profit in the first quarter of 2009 was $0.39 per share.  First-quarter sales and revenues of $8.238 billion were down from $9.225 billion in the first quarter of 2009.(i.e. we sold less product than we did in the middle of the recession.)

“Economic conditions are definitely improving, particularly in the world’s developing economies. (we are not selling more in the US & Europe) Industry activity and orders are significantly higher than last year and are at record levels in some areas. As a result, we are hard at work ramping up production to meet increasing demand from customers,” said Chairman and Chief Executive Officer Jim Owens.  “Despite the recession in 2009, we continued to invest in our facilities throughout the world, and those investments will position us for success as global growth continues.  We are also seeing strong order activity related to mining and energy, and that should be very positive for our U.S. exports as the year unfolds,” Owens added. (Notice focus on exports, not domestic sales)

First-quarter profit was $233 million compared with a loss of $112 million in the first quarter of 2009.  The improvement in profit was a result of lower manufacturing costs, the absence of redundancy costs (again, layoffs & job cuts) and favorable price realization (this basically means fewer discounts on products sold).  The improvements were partially offset by the impact of lower sales volume (Partially offset?  Sales were off by 12% from 2009 recession levels) and higher taxes, including the $90 million charge related to the recently signed U.S. health care legislation. (this is a distraction from the fact that we didn’t sell as much product)

“We are very encouraged by our performance in the first quarter.  We focused on cost management (layoffs) and deployment of the Caterpillar Production System—factory efficiency improved, margins improved and our Machinery business returned to profitability,” Owens said.  “In addition, cash flow was positive, and we strengthened our balance sheet with continued improvement in our debt-to-capital ratio.(i.e. we got rid of all of our bad debt from loaning money to entities that didn’t qualify) As a result, we are well positioned to invest for growth where needed,” Owens added.


Caterpillar is increasing its outlook for 2010 by raising the sales and revenues range and profit expectations.  For sales and revenues, the revised range is $38 to $42 billion.   (notice, we are not comparing this number vs the 2009 numbers?) The revised 2010 profit outlook is a range of $2.50 to $3.25 per share.

“The main driver behind our improved outlook is robust growth in Asia/Pacific and Latin America and continued improvement in mining and energy globally,” Owens said.  (again, no mention of domestic or European sales)

“We are increasing production schedules and expect sales to improve as we move through 2010.  We remain highly focused on execution—the deployment of the Caterpillar Production System using 6 Sigma, tight cost management, efficiently ramping up production and preparing for Environmental Protection Agency (EPA) Tier 4 emission requirements.  We expect to continue to add employees around the world to support growth and in the United States to support growing exports. (This is an interesting sentence – They are adding jobs to support growth internationally, but onece again, they are not expecting domestic sales growth.) We are confident in the ability of the entire Caterpillar team—our suppliers, employees and dealers—to work together to meet growing customer demand,” Owens said.  –  End of Story  –

So, what am I saying?  Don’t just read the headlines and assume that you’re getting the whole story.  We continue to be prudent and disciplined in our investment strategy.


Incremental change…

The idealist in many of us would love to suddenly see the concept of corporate responsibility wash over Wall Street.  The realist in us says that it is, if not immovable, very difficult to move.  But then again, the pragmatist in us says that we can move it, just in small increments.

It is rewarding when we see the fruits of our efforts in the socially & environmentally responsible investing community.  Slowly companies are realizing that concepts such as energy efficiency are not only good for the environment, but also for the bottom line.

I had an introduction to orienteering several years ago.  Orienteering is the ability to get from point A to point B using basic instructions and a compass.  One of the rules is to make sure that you are headed in the right direction, because being off just one degree makes a huge difference the farther you are from your starting point, and you can end up somewhere completely different than you intended.

As we invest, there are always going to be what we call the best in class companies – the ones that we’re proud to have in our portfolios.  But the majority of companies out there are not best in class, they simply need a push in a different direction to start their change.  This push can come from direct engagement with our investment and institutional managers or thru shareholder resolutions.

If you go into your local Best Buy store, for example, you’ll see that they now offer electronics recycling.  This is a direct result of engagement with investment and institutional managers.  The system does work.

If you feel that you can’t make a difference alone, remember that your socially & environmentally responsible investments are.  By putting your money where your mouth is, you are combining your assets with many other individuals and institutions just like you, who care about how they fund their financial goals.  There is strength in numbers, so the more assets we have, the more muscle we have to work with companies.

So, using the orienteering analogy, every degree of change that we help institute can make a huge difference down the road, and when we compound this with other metrics and companies, it’s easy to see the importance of socially & environmentally responsible investing.  If you haven’t started, isn’t it about time?

Upcoming Conference Call

Friends & Clients – We will be hosting a conference call next Wednesday the 21st at 1:00pm.

In this call, we will be covering several things:

  • The status of the merger with Minerva Planning Group
  • A review of performance and investment allocation
  • Our opinion on the state of the markets & economy and where we think they are going
  • Question and answer

Contact us for the call-in number and access code.

The Big Short…

If you would like to learn more about what really happened with the sub-prime mortgage crisis, pick up a copy of The Big Short by Michael Lewis.  I started reading the book last week, and am just amazed at the lack of oversight, the greed and the incompetence displayed by these market insiders!

Basically, the book is about the few people who recognized there was a problem.   Lenders were basically giving away money to people who were nowhere near qualified to receive it.  These loans were then packaged into tidy securities and amazingly rated very high by the rating agencies.  Nobody was looking behind the curtain to see what was really happening – it was too lucrative a business!

We’re proud that our strategy has focused on quality, prudence and diversification.  Our core values as well as our fiduciary duty to our clients demands it.


First, welcome to my blog.  I always said that I would never do one of these…I also said that I would never become a runner either.

I now run 5k (3.1 miles) three times per week at the YWCA in Brunswick – started last year when I decided that I needed to begin an exercise regime.  This morning while running, they had CNBC on one of the TVs in the cardio room.  I am so glad that there is no volume, because it just frustrates me to listen to the talking heads debate  the recession, company XYZ’s weekly sales numbers or how unemployment is affecting people.

Before the “Great Recession,” these same people were on the same programs talking about the same things.  Why do we continue to give them a pulpit?  Anybody who came on these shows and tried to warn people about the risks involved in risky investing was talked down.

I’ll say this as kindly as I can: I don’t believe the analysis coming from Wall Street.  The same people who both caused and ignored the problems that led to the financial crisis are the same ones doing financial analysis today.  It seems to me that the majority of these people have been proven to not be experts anymore.  Yet there they are…

Do you honestly think that the unemployment situation is improving?  Ask yourself, do you know someone who was recently hired?

PNC’s latest economic survey says that only 22% of private businesses plan to hire full time employees in the next six months, and that 92% do not feel that the US economy has improved.  There is a huge disconnect between what we’re hearing out of Wall Street and what small & middle market business owners are saying.

Ask any of the people who I socialize with, I tend to be a very positive person.  With all of this negativity, how do I maintain a positive attitude in managing my clients’ assets?  Prudence.  I believe that by being prudent, we are doing the absolute best we can to balance both risk and opportunity in client portfolios.  Is there opportunity out there now?  Yes.  Is there risk out there now?  Definitely.  It’s how we balance the two that helps me keep a positive attitude toward investment management.  I feel confident that we are doing the right thing at the right time for our clients.

The economy is not going to improve overnight, no matter what the talking heads tell you.  Be smart, be disciplined and be prudent.  Whether it’s 5k or 500k, keep your head up and continue running, you’ll get there.  We’re in this for the long haul.