Caterpillar Gets Squashed

Let's face it. There are a handful of companies -- bellwethers -- whose earnings releases are important because they tend to give us solid clues about the economy. Although individual bellwether lists may vary, I'll bet most would include heavy-equipment maker Caterpillar (NYSE: CAT  ) , which reported on Tuesday.

You'd have to work long and hard to extract good news from Caterpillar's results. The magnitude of the company's swing was demonstrated by its loss of $112 million, compared to a profit of $922 million in the first quarter of 2008. On the per-share line, the loss was $0.19, compared to earnings of $1.45 last year.

But management was quick to point out that without "redundancy costs" -- the expenses related to laying off approximately 25,000 of its workers -- the company would have turned a $0.39-per-share profit. Revenue slid 22% year over year, the same order of magnitude as the plunge in the sale of machinery and engines.

Geographically, on the machinery side, sales were down across the board, with the Europe-Africa-Middle East region falling by 46%, while Asia-Pacific was held to a respectable 2% dip. Indeed, the same region managed a 10% increase in engine sales, the only positive geographic trend for the big company.

But investing is a forward-looking activity, and Caterpillar's management does an unusually good job of laying out their expectations for the future. Unfortunately, what lies ahead for the rest of this year doesn't appear too pretty. Per-share guidance for the year is now $1.25, which, if you're keeping track, is precisely half the expectation served up just three months ago. At the same time, the upper end of the revenue range was trimmed by 12.5%.

I suppose the direction of these moves shouldn't be particularly surprising, but from an it-happened-overnight perspective, as recently as late August Caterpillar was laying out plays to build overseas facilities to handle a deluge of orders. Now the capital goods sector has been clobbered. Manitowoc (NYSE: MTW  ) recently issued a warning for this quarter and won’t issue guidance for the year, and Deere (NYSE: DE  ) will tell its story next month.

My advice to Fools in the meantime is to give cap goods a wide berth. Oh, and keep your eyes on those bellwethers for signs of economic recovery. DuPont (NYSE: DD  ) , which also cut its forecast Tuesday, is worth watching, as are several other big companies, including retailing giant Wal-Mart (NYSE: WMT  ) .     

For related Foolishness:

FedEx is a Motley Fool Stock Advisor selection. United Parcel Service is a Motley Fool Income Investor pick and Wal-Mart Stores is a Motley Fool Inside Value selection. Try any of our Foolish newsletters today, free for 30 days.

Fool Contributor David Lee Smith doesn't own shares in any of he companies mentioned. He does, however, welcome your comments or questions. The Motley Fool has a solid disclosure policy.


Read/Post Comments (2) | Recommend This Article (5)

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  • Report this Comment On April 22, 2009, at 6:22 PM, fortgreeley wrote:

    Wrong. Cat is fundamentally strong. International. Largest in its industry. Eliminated positions. Keeping its dividend. I think the analysts are now trying to drive the price down with negative reviews in order to "make their predictions come true." It's a strong buy. Look for 60 at yearend.

  • Report this Comment On April 24, 2009, at 4:02 PM, zemz wrote:

    caterpillar has a huge moat and will reap the benefits of the china stimulus initiatives. cat is holding at 70% off its 52 week high and its lucrative dividend will give an investor huge profits as the economy recovers

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