Caterpillar, Inc. (CAT)

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Caterpillar, Inc. (CAT)

Q1 2009 Earnings Call Transcript

April 21, 2009 11:00 am ET

Executives

Mike DeWalt – Director, IR

Jim Owens – Chairman & CEO

Ed Rapp – Group President

Analysts

Henry Kirn – UBS Securities

Robert Wertheimer – Morgan Stanley

Terry Darling – Goldman Sachs

Kristine Kubacki – Avondale Partners

Jamie Cook – Credit Suisse

Daniel Dowd – Sanford Bernstein Research

Barry Bannister – Stifel Nicolaus

Mark Koznarek – Cleveland Research

David Raso – ISI

Presentation

Operator

Good morning, ladies and gentlemen, and welcome to the Caterpillar First Quarter 2009 Earnings Call. (Operator instructions) It is now my pleasure to turn the floor over to your host Mr. Mike DeWalt. Sir, the floor is yours.

Mike DeWalt

Thank you. Good morning and welcome to Caterpillar's first quarter earnings conference call. I'm Mike DeWalt, the Director of Investor Relations. I am pleased to have our Chairman and CEO, Jim Owens; Group President, Ed Rapp; and our CFO, Dave Burritt, with me on the call today.

This call is copyright 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'd like a copy of today's call transcript, you can go to the SEC filings area of the Investor section of our cat.com Web site or to the SEC's Web site where it will be filed as an 8-K.

In addition, certain information relating to projections of our results that we'll 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 risk factors that 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 1A, Business Risk Factors, of our Form 10-Q filed with the SEC on February 28, 2009 and also in the Safe Harbor language contained in today's release.

Okay. Earlier this morning, we reported results for the first quarter of 2009 and we updated our outlook for profit for the year.

To start this morning, I'll take a few minutes to summarize the quarter, then I'll turn it over to Jim Owens, and he'll discuss the economic environment, the actions we are taking to proactively deal with it and he will cover our outlook for 2009.

Okay. Let's start with a quick review of the quarter. Sales and revenues were $9.225 billion, and that's down about $2.6 billion or 22% from the first quarter of 2008.

You will see in this morning's financial release that we've shown two profit numbers. The all in GAAP number, and that was a loss of $0.19 per share, and a number excluding redundancy costs, and that was a profit of $0.39 a share.

Just to remind you, in our year-end release, we expressed our profit outlook excluding redundancy costs, and the consensus profit estimate reported by First Call, also excludes redundancy costs.

Consensus for the quarter was $0.04 per share of profit, and that compares with $0.39 that we reported this morning, again, excluding redundancy costs.

Of the $2.6 billion decline in sales and revenues, machinery volume was down $2.450 billion. If you exclude the impact of consolidating CAT Japan, volume decline in every region of the world, and the rate of decline was most significant in the Europe, Africa and Middle-East region.

Dealer inventory changes had a sizable impact on machinery volume. During the quarter, dealers reduced their inventories by about $300 million, and that means that our sales of new machines were about $300 million below dealer sales to end users.

During the first quarter of last year, dealers increased inventory by about $700 million. That means that dealer inventory changes had a negative impact on our quarter-to-quarter sales by nearly $1 billion. The consolidation of CAT Japan added $291 million to machine sales, and geographically, it's included in our Asia-Pacific region.

Engine volume was down $254 million, but held up better than machinery sales. Turbine sales remained very strong, and are expected to remain so throughout 2009.

Sales of large reciprocating engines also held up well during the quarter, a result of a strong order backlog coming into 2009. We do expect that reciprocating engine sales will be under more pressure as we move through the year and the backlog comes down.

One more point on engine volumes. We are now essentially done selling on highway engines. Okay, that's volume.

Currency had a negative impact on sales of $281 million as a result of a stronger dollar compared with the first quarter of 2008. And financial products revenues were down $102 million.

On a positive note, price realization remained positive, and was favorable $225 million or about 2.5%.

Okay, let's turn to profits. Again, we reported a $0.19 per share loss in the quarter, and that included $558 million or about $0.58 a share of employee-related redundancy costs. Excluding those redundancy costs, profit was $0.39 per share.

Profit in the first quarter of 2008 was $1.45 per share, so the drop from last year was significant. The company has mobilized to bring our cost structure inline with the economic realities of 2009. I've been at Caterpillar almost 30 years and it's been without a doubt the fastest and most significant response, I've ever seen.

Despite the significant action, profit was substantially lower and the big decline in sales volume was the main driver. In addition, manufacturing costs were negative. While we acted very quickly to deploy our recessionary trough action plans, cost reduction did impact the decline in production.

Given the speed of the drop in demand, we expected that would happen. The profit impact from the consolidation of Cat Japan was also negative, and financial products profit was also lower. Partially offsetting those negatives, price realization was favorable 225 and total SG&A and R&D costs were down substantially.

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