This summary is based on the second quarter fiscal 2008 earnings call conducted by Caterpillar Inc. (CAT: chart) on July 22, 2008.

Management:

Director of Investor Relations: Mike DeWalt
Chairman & CEO: James Owens
Group President: Edward Rapp
CFO: David Burritt

Key Investors Issues

- EPS were $1.74 a share compared to $1.24 a share last year.
- Net income rose 34% to $1.1 billion from $823 million in the year-ago period.
- Revenue jumped 20% to $13.6 billion from $11.4 billion a year ago.

Second Quarter Highlights

Sales and revenues were $13.6 billion, and that was up 20% from the second quarter last year.

- Profit per share was $1.74, and that was up 40% from last year.
- Sales and revenues were up $2.268 billion and the elements were machinery volume, up $787 million, or about 11%.
- Engine volume was up $615 million, an increase of about 18%.
- Price realization added $398 million and about $207 million of that was related to engines and $191 million related to machinery.

- Currency impacts increased sales by $384 million. That means that sales that were denominated and currencies other than the U.S. dollar translated into more dollars because the dollar was weaker on average than the second quarter last year. Financial products revenues were up $84 million.
- Relative weakness in North America more than offset by strong growth outside North America. In fact, sales and revenues were up 52% in Asia Pacific, Latin America was up 27%.
- EMEA, Europe, Africa, and Middle East region, which includes the CIS, was up 22%. Even in North America, the company was up 7%.
- 60% of sales and revenues were outside North America. A year ago in the second quarter, that number was 55%. Compared with the second quarter of 2006, Asia Pacific is up 84%, Europe, Africa, Middle East is up 60%, and Latin America is up 55%.

End-user demand for new machines is continuing to decline in North America.

- North American dealers reduced inventories in last year''s second quarter by about $800 million. That means that dealers satisfied about $800 million of end-user demand from inventory. That had a negative impact on sales last year. This year dealers reduced inventories, but only by about $200 million. So the negative impact on sales was much less than last year.

- Mining is doing well, particularly for coal. Coal prices are up substantially from last year and U.S. exports of coal are rising. Sales to coal customers were well up from the same period a year ago. In addition, sales for engines were up. On-highway, petroleum, marine, and industrial engine sales were all up. Machinery and engine sales include a wide array of services, including after-market parts, Progress Rail, CAT remanufacturing and CAT logistics. And these businesses are generally not as cyclical as the new machine sales.

- The company had top line of 20% in the face of extreme softness in North America and a weakening in Europe. Second quarter was the best ever for profit at $1,106,000,000 and $1.74 a share. Profit dollars were up 34% and per share was up 40%. The company did have a discreet tax benefit in of $47 million. Without that tax adjustment, profit would have been up 29%, rather than 34%, and profit per share would have been up 35% rather than 40%. The tax adjustment was a positive, but it still would have been an all-time record for profit and profit per share, even without it. Improvement in profit versus a year ago was the result of $398 million of improved price realization, the higher physical sales volume, and the $47 million tax benefit.

- Those positive impacts were partially offset by higher manufacturing costs, particularly for material. And about $80 million of negative product mix; essentially, all related to machinery. Overall, manufacturing costs were up $143 million and essentially all of that increase was material and freight. Material costs were about two-thirds of that total and freight and expediting, the other third.

- Machinery and engines SG&A and R&D expenses combined up about $113 million but declined as a percent of sales. The increase in operating costs was mitigated somewhat by the absence of a $44 million pre-tax pension charge from the second quarter of last year. The impact of currency on operating profit was a negative again this quarter by about $62 million.
For machinery and engines, operating profit was $1,430,000,000 or 11.2% of sales. That compares with operating profit of $1,120,000,000 a year ago, or 10.65% of sales in the second quarter last year. All of that operating profit improvement was related to engines, machinery operating profit was little change from last year.

Fiscal 2008 Outlook

- The company expects sales and revenues to be about $50 billion for 2008 and profit per share to be about $6. Previous outlook was a range of $47.2 billion to $49.5 billion at the top line. That was up 5% to 10% from 2007.
- Product profit outlook was a range of $564 million to $618 million, or up 5% to 15%.
- The company expects that for the second half of 2008 that price realization will see material cost increases. In fact, for the full year the company expects that price realization in dollars will be more than double material cost increase.

Key questions from the second quarter earnings call conducted by Caterpillar Inc. on July 22, 2008.

David Raso (Citigroup): You commented that price would be twice as much as your increase in material costs. If you look at the guidance material costs, you said 2.5% to 3%. If I take the mid-point of that, it is saying your costs will be up about $900 million. For a price to be a billion eight, that means you need the back half of the year price realization of over a billion one, a billion two. You are saying price realization is going to accelerate to well over 5% each of the next two quarters, after you just did 3.3% in the first half. Is that correct?