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Caterpillar (CAT)
Caterpillar Returns to Profitability with Lower Revenue
As the housing market came to a screeching halt last year, so did manufacturing. As a result, manufacturers of construction equipment also watched demand and corresponding profits take a serious dip. Things are starting to pick up in the economy and that uptick is spilling over into multiple industries that are reliant on consumers. Caterpillar, Inc. appears to be reaping some of the benefits of an improving economy, but maybe not as quickly as the company would like. The company reported a profit of $371 million after posting a $112 million loss during the first quarter. Is the company really improving or finding other ways to appear profitable? Can Caterpillar stay out of the danger zone in the future?
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| Stock Analysis |
Although Caterpillar was able to turn a profit during the second-quarter, the results were still minimal compared to the $1.1 billion profit is posted at the beginning of 2008. The company watched profits tumbled 66% during the second quarter as demand for the earth moving machines it produces continued to struggle. Caterpillar tried the same cost-cutting course of action that many companies use to make profits appear better than they truly are. Caterpillar has undertaken dramatic cost-cutting measures, including the planned elimination of more than 22,000 positions and sweeping production cuts. The company employed 112,887 people at the end of 2008. Unfortunately, the company's efforts were still not enough to push earnings up to the level they need to be at. Sales of large equipment, which is the primary source of revenue for the company, sank in May. Machinery sales fell 49 percent to $4.34 billion and engine sales fell 32 percent to $2.92 billion. Revenue from financial products fell 13 percent to $721 million.
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The company is dealing with a wide range of issues while trying to fill big shoes. Remember this is a company that posted its first quarterly loss in 17 years just a few months ago. Expectations are definitely extremely high for the company, but it is still unclear if those expectations will be met. The company appears confident that it will start delivering the results that Wall Street expects. Caterpillar boosted its 2009 forecast and said that it is expecting full-year profit to be $1.15 to $2.25 a share. The company is also expecting sales to be from $32 billion to $36 billion. Caterpillar is placing a lot of its future success on various stimulus plans across the world, but particularly China. Investors should probably continue to proceed with caution because all these variables are easily changeable and have the possibility of leaving the company in an unwanted position.
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Hopefully things will start to shape up better at the company. During these volatile times, it's hard to actually pinpoint how a company will perform from quarter to quarter. Caterpillar definitely has a long way to travel since it was previously so profitable. Despite the dip in profits, investors still pushed shares of the company higher during morning trading. The company also received an upgrade from neutral to buy from Merrill Lynch a day earlier.
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