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Monday, January 26, 2009

Caterpillar 4Q:08 results

    "While 2008 was our sixth consecutive year of record sales and revenues,
it was an extraordinarily challenging year," said Caterpillar Chairman and
Chief Executive Officer Jim Owens.  "Through the first three quarters we
experienced booming demand from key global industries, notably mining and
energy, and most emerging market countries. Delivery times for many products
were extended, and we were focused on increasing production and expediting
shipments to meet customer needs," Owens added. "Then we were whipsawed in the
fourth quarter as key industries were hit by a rapidly deteriorating global
economy and plunging commodity prices.  In anticipation of lower demand we
encouraged dealers to align inventory with declining volume, and they
responded with significant order cancellations, particularly in December."

You don’t want to see a company with a long-tail cycle like Cat talk about being whipsawed.  They’re not a quick mover at 50 billion dollars in sales.  The company is planning for 36-44 billion in 2009 sales and expects EPS of $2.50 at the midpoint of that number.

There is conspicuously no Caterpillar financial guidance and herein lies the real problem with the stock.  Past dues over 30 days jumped to 3.88% from last quarter’s 3.6%.  Write-offs doubled from year ago.  Their allowance for credit losses, however, is 1.44% versus 1.39% last year.  There are clear signs of credit quality issues in their report and it reads like management just woke up in the 4th quarter thinking there might be a decline in demand.

Caterpillar serves many of the same markets and borrowers that are negatively affecting the banks.  It’s a long-term short.  So far, nothing about this report sways me from that opinion.

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