Caterpillar, Inc. (CAT)
Q4 2009 Earnings Call Transcript
January 27, 2010 11:00 a.m. ET

Executives

Mike DeWalt – Director, Investor Relations
James W. Owens – Chairman & Chief Executive Officer
Douglas R. Oberhelman – Vice Chairman & Chairman Elect
David B. Burritt – Chief Financial Officer

Analysts

David Raso – ISI Group
Robert Wertheimer – Morgan Stanley
Eli Lustgarten – Longbow Research
Andrew Casey – Wells Fargo Securities
Andrew Obin – Bank of America/Merrill Lynch
Alexander Blanton – Ingalls & Snyder
Ann Duignan – JP Morgan
Daniel Dowd – Bernstein
Joel Tiss – Buckingham
Robert McCarthy – Robert W. Baird & Company
Henry Kirn – UBS
Barry Bannister – Stifel Nicolaus
Jamie Cook – Credit Suisse

Presentation

Operator

Good morning, ladies and gentlemen and welcome to the Caterpillar Year End 2009 Earnings Results Call. At this time, all lines have been placed on a listen-only mode and we will open the floor for your questions and comments following the presentation.

It is now my pleasure to turn the floor over to your host, Mr. Mike DeWalt, Director of Investor Relations. Sir, the floor is yours.

Mike DeWalt

Thank you very much and good morning and welcome to Caterpillar’s year end earnings conference call. I am Mike DeWalt, the Director of Investor Relations and I’m pleased to have our Chairman and CEO, James Owens, our Vice Chairman and Chairman Elect, Douglas Oberhelman and our CFO, Dave Burritt with me on the call today.

As always, this call is copyrighted by Caterpillar, Inc. and any use recording, or transmission of any portion of this call without the expressed written consent of Caterpillar is strictly prohibited. If you would like a copy of today’s call transcript, you can go to the SEC filings area of the Investors Section of our cat.com website or to the SEC’s website where it will be filed as an 8-K. In addition, certain information relating to projections of our results that we will be discussing today is forward-looking and involves risks, uncertainties, and assumptions that could cause actual results to materially differ from the forward-looking information.

A discussion of some of the factors that either individually or in the aggregate we believe could make actual results differ materially from our projections can be found in our cautionary statements under Item 1-A, business risk factors of our Form 10-Q filed with the SEC on October 30, 2009. And it’s also in our Safe Harbor language contained in today’s release.

Okay. Earlier this morning, we reported results for the fourth quarter and the full year of 2009 and we provided an outlook for 2010. Sales and revenues were 7.9 billion for the quarter and 32.4 billion for the full year and that was about in the middle of our 32 to $33 billion outlook for sales and revenues in 2009.

So in general, sales and revenues were about as expected. Profit in the fourth quarter was $0.36 per share and that included redundancy costs of $0.05 a share. Excluding redundancy, profit was $0.41 a share. Full year profit was $1.43 per share including redundancy costs of $0.75.

Excluding redundancy, profit was 2.18 a share. At 2.18, profit was $0.13 higher than the top end of our 2009 profit outlook, largely a result of favorable taxes. The 7.9 billion of sales and revenues in the fourth quarter was down about 5 billion or 39% compared with the fourth quarter of 2008. And similar to prior quarters this year, the decline was primarily due to significantly lower end user demand and continued dealer inventory reductions and partially offset by favorable price realization. Currency was also favorable to sales in the fourth quarter.

Fourth quarter profit per share of $0.36 was $0.72 lower than the $1.08 in the quarter of 2008. But given the $5 billion drop in sales and revenues, the $0.72 per share drop in fourth quarter profit was relatively modest. Significant cost reduction and favorable price realization helped to offset a large portion of the impact of lower sales volume.

Combined, our manufacturing, R&D and SG&A costs were 1.1 billion lower than the fourth quarter of 2008. For the year, sales and revenues of 32.4 billion declined about 19 billion or 37% from 51.3 billion in 2008. Machinery volume was off 13.9 billion, engine volume was down 5.1 billion and currency impacts and financial products revenues were each negative over 400 million.

Dealer inventory changes contributed to the decline in year-over-year sales volume. And to fully understand the impact on the 2009 versus 2008 change in sales, we need to understand what actually happened to inventory in both 2008 and 2009.

In 2008, dealers increased machine inventories by 1.5 billion and engines about 700 million. That means that our 2008 sales were higher than end user demand by about $2 billion.