Caterpillar's Earnings Fall 66%, but Cost Cutting Boosts Forecast

By BOB TITA

Caterpillar Inc. on Tuesday reported a 66% decline in second-quarter profit but raised its full-year forecast as cost cutting has started to yield results.

The world's largest construction- and mining-equipment maker by sales lifted its 2009 earnings forecast to a range of $1.15 to $2.25 a share despite trimming revenue guidance to $32 billion to $36 billion.

View Full Image

Bloomberg News

Caterpillar raised the high end of its forecast but said demand remainsweak.

The new projection compares with its view in April for earnings of $1.25 a share on revenue of $31.5 billion to $38.5 billion.

The company's second-quarter earnings also exceeded Wall Street's expectations, and Caterpillar's shares rose $2.81, or 7.7%, to $39.46 in 4 p.m. composite trading Tuesday on the New York Stock Exchange.

Nevertheless, the Peoria, Ill., company said demand remains weak, and it expects the global economy to contract by more than 2% this year.

Caterpillar predicted its third-quarter sales would be the weakest of the year as dealers delay new-equipment orders to eliminate an estimated $1.5 billion of inventory during the second half of 2009. The company is anticipating widespread temporary layoffs and rolling factory shutdowns to lower production, and said a loss for the quarter is possible.

"We're dealing with the worst recession since the Depression," Chairman and Chief Executive Jim Owens said during a conference call with analysts. "The rolling-layoff concept gives us a lot of flexibility to take out costs and to take advantage of [sales] opportunities as they present themselves.

For the second-quarter, Caterpillar reported net income of $371 million, or 60 cents a share, down from $1.11 billion, or $1.74 a share, a year earlier.

The latest results included $85 million in costs related to job cuts. Excluding those items, earnings would have been 72 cents a share. Sales decreased 41% to $8 billion. Analysts polled by Thomson Reuters expected earnings of 22 cents and revenue of $8.86 billion.

Write to Bob Tita at robert.tita@dowjones.com