3Q 2009 Earnings for Caterpillar Incorporated

Caterpillar Inc. posted 3Q 2009 earnings this past Tuesday, October 20th.

The industrial machine giant announced a third-quarter profit of $0.64 per share, revenue of $7.298 billion, and net income of $404 million.

Year-over-year EPS declined 75 cents a share from $1.39 per share in 3Q 2008. However, CAT destroyed the estimates on the street, which ranged from $0.04 to $0.06 per share.

Overall revenue dropped 44 percent from last year’s third quarter revenues of $12.981 billion and profits fell $464 million from $868 million in 3Q 2008. Despite these significant declines, management is still very pleased with CAT’s performance in light of the economic environment and has implemented effective trough management. The drop in profit was primarily due to significantly lower sales volume worldwide. Instead of purchasing new equipment from CAT, dealers across the world focused on using up current inventory stock piles.

Management has tightened their expected 2009 revenue range to $32 to $33 billion which is slightly lower than the midpoint range of $35 billion they announced at the beginning of the year. However, the 2009 profit outlook range has improved to $1.85 to $2.05 per share, excluding redundancy costs, from the previous range of $1.15 to $2.25 per share. Current estimates on the street range from $1.88 to $2.15 per share. Management also expects revenues for 2010 to increase in the range of 10 to 25 percent of overall revenues in 2009.

On Friday, October 23rd we sold half of our current position in CAT. This was a wise choice as it allows us to capture some of the tremendous return we obtained by purchasing CAT, but also allows us to wait and see what will happen with CAT going forward. Our original thesis was not only that CAT was a recession pick, but that the proposed economic stimulus plans would benefit CAT tremendously. We still have not had a major infrastructure push here in America yet, but it has already begun in China. As a whole, revenues in CAT’s Asia/Pacific region declined the least compared to the other regions CAT operates in. Additionally, since dealers have relied on their inventory to fulfill orders, once the economy starts to pick up so will construction and mining operations and dealers will have to replenish inventories and fulfill orders by going through CAT.

-Matthew Opanowski