Caterpillar Inc. (CAT) reported fourth quarter earnings of 41 cents per share, beating the Zacks Consensus Estimate of 28 cents per share. However, the company’s EPS declined 62.0% on a year-over-year basis.
Revenue in the quarter was down 38.9% to $7.9 billion from $12.9 billion posted last year. The sales decline in the quarter constituted lower Machinery sales volume (-$3.4 billion), lower Engines sales volume (-$2.0 billion) and lower Financial Products revenue (-$98 million), partially offset by positive impact of foreign currency translation (-$219 million) and higher price realization (+$199 million).
The company witnessed revenue weakness across its end markets. Both the Machinery Group and the Engines segment have reported revenue decline of 41% each, while the Financial Products segment revenue was down 12%.
Sales were down compared to last year in all the geographic regions. This was due to a combination of slower residential and commercial construction activity, and a reduction in dealer orders, and tight lending conditions.
For the full year 2009, Caterpillar reported earnings of $2.18 per share, beating the Zacks Consensus Estimate of $2.03 but down 61% year over year. Cost reductions and higher price realizations were more than offset by lower sales volumes. Revenue declined 37% from $51.3 billion in 2008 to $32.4 billion in 2009.
In response to the challenging global business environment, Caterpillar has implemented aggressive cost-cutting initiatives in 2009. The company has reduced its workforce significantly. Also, the company has implemented full or partial shutdowns at some of the plants, delayed its R&D programs and reduced its capital expenditure substantially. These actions helped the company achieve its target of reducing SG&A and R&D costs by more than 15%. Moreover, the company has cut down its inventory by about $2.4 billion during 2009 with the help of the Caterpillar Production System (CPS).
Caterpillar is optimistic about 2010. The company anticipates an improvement in its top-line as it sees signs of economic improvement, particularly in China and other developing nations. Management said that there is an increase demand for mining equipment due to improved commodity prices and growing confidence in economic recovery. Based on this outlook, Caterpillar forecasts a 10% to 25% increase in sales for 2010, compared to 2009. The company expects earnings of $2.50 per share for the year at the midpoint of its revenue guidance.
Being a market leader in construction and mining equipment, we believe Caterpillar will benefit immensely from the growing demand in its end markets. We maintain an Outperform rating on the stock.
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