Caterpillar Inc., the world’s largest maker of bulldozers and excavators, said it’s cutting 20,000 jobs and this year’s profit and sales will trail analysts’ estimates as the deepest recession in a quarter century saps demand.
The jobs include 12,000 employees, or 11 percent of the workforce, and 8,000 contractors, spokesman Jim Dugan said today. Peoria, Illinois-based Caterpillar’s full-year earnings forecast missed the average estimate by 41 percent, and its shares dropped the most in eight weeks.
Fourth-quarter profit fell by almost a third as demand evaporated after nine months of record sales to mining and energy companies, Caterpillar said in a statement. U.S. builders broke ground last month on the fewest houses since record- keeping began 50 years ago, and government stimulus plans like those from President Barack Obama may not be enough to offset the drop in private construction, the company said.
“The results were worse than we were even anticipating, and we had lowered our expectations considerably,” Kristine Kubacki, a St. Louis-based analyst with Avondale Partners LLC, said in an interview. Comments about order cancellations in December “were particularly worrisome,” she said.
Profit excluding some items may fall this year to $2.50 a share, less than the average estimate of $4.22 in a Bloomberg survey of 21 analysts. Sales may decline 22 percent to $40 billion, below the $46 billion average estimate.
Shares Decline Caterpillar dropped $2.78, or 7.8 percent, to $32.88 at 10 a.m. in New York Stock Exchange composite trading and earlier fell 10 percent in the biggest intraday percentage decline since Dec. 1. Credit-default swaps rose 61 basis points to 275 basis points, matching a record close on Dec. 5, according to CMA DataVision in London.
Questions about the depth and duration of the U.S. recession triggered a plan to cut production costs in line with a 25 percent decline in sales volume, today’s statement said.
“We were whipsawed in the fourth quarter as key industries were hit by a rapidly deteriorating global economy and plunging commodity prices,” Chief Executive Officer Jim Owens, 63, said in a statement. “We expect 2009 will be the weakest year for economic growth in the postwar period.” Fourth-quarter net income fell to $661 million, or $1.08 a share, from $975 million, or $1.50, a year earlier. Analysts, on average, estimated earnings of $1.30 a share. Sales rose 6.4 percent to $12.9 billion, partly reflecting price increases and the consolidation of Cat Japan sales into the parent company.
Global Growth Stalls American exports are contracting as the global economy faces the first simultaneous recession in the U.S., Japan and the euro region in the postwar era. Foreign purchases of American-made goods plunged 5.8 percent in November, declining for a fourth consecutive month, to $142.8 billion, the Commerce Department said Jan. 13.
“We are expecting recessionary conditions to persist in most of the world throughout the year, with no growth in the world economy,” said Owens, who in October predicted the global economy would see “less than 2.5 percent growth.” The jobs target is a mixture of previously announced and new reductions, Dugan said. The cuts include 5,000 management and support positions that had not previously been announced. Caterpillar had 112,887 employees at the end of 2008.
Charges to Earnings A first-quarter loss is possible as production volume is “severely depressed” and production and sales may fall faster than costs early in the year, Caterpillar said. In addition, the company will see job-related expenses of $500 million, most of which will be booked in the first quarter.
Credit default swaps rose after Caterpillar said its consolidated net worth fell below the covenant level in its $6.85 billion revolving credit facility because of a $3.4 billion year-end charge driven by lower returns on its pension assets. The company said its corporate bank group has consented to the consolidated net worth level and that it has no borrowings under the credit facility.
Caterpillar Financial Services Corp., the provider of financing to dealers and customers, said in a regulatory statement it amended four credit agreements after violating loan covenants.
