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.


One Comment on “Doesn’t anybody read these things?”

  1. Kurt Navratil says:

    Good points Pete. I appreciate you reading between the lines. I don’t see much positive in what Cat said.

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