From the Press Release:
PEORIA, Ill., July 21 /PRNewswire-FirstCall/ -- Caterpillar Inc. today reported a second-quarter profit of $0.60 per share, down $1.14 per share from the second quarter of 2008. Excluding redundancy costs, profit was $0.72 per share. Redundancy costs related to reducing employment were $85 million before tax or $0.12 per share in the quarter. Sales and revenues of $7.975 billion were down 41 percent from $13.624 billion in the second quarter 2008.
Uh, make that the 40% club.
The second-quarter profit of $371 million was down $735 million from $1.106 billion in the second quarter of 2008. The decline was largely a result of lower sales volume and $85 million of redundancy costs. These negative impacts were partially offset by lower Selling, General and Administrative (SG&A) and Research and Development (R&D) expenses, favorable price realization, LIFO inventory decrement benefits and a lower tax rate.
Watch that LIFO; it can burn you hard down the road.
The street loved it; the futures moved about a half-percent on the release and CAT's stock is up $4 pre-market, more than 10%.
Oh, and if you're wondering how in the devil you can turn in these sorts of numbers with this kind of top-line, here's part of the reason:
Utilizing the Caterpillar Production System (CPS) with 6 Sigma, the company reduced inventory in the second quarter by more than $800 million, and through the first half of the year inventory has declined by more than $1.6 billion.
In other words they already paid for the $800 million of "stuff" building it in previous quarters (and recorded the costs of doing so) and now they've sold it; this results in a nice bump to the bottom line.
That works out well for this quarter and makes for a hell of a beat. Indeed, absent this inventory sell-down there's no way that sort of performance could have been achieved.
And once again we get a lesson in how revenues (down 41%) hit profits (down 735 million from 1.106 billion), and the "profit" they made was only due to selling already-built stuff! That is, absent that extra inventory they had available to sell that decline in revenues was almost certainly more than enough to tip the company into a sizable loss.
Before you think I'm slagging on CAT, I'm not. Quality management is how you get through recessions, and as I've noted many times, this sort of fat-cutting is good for the economy over time, as it wrings waste and redundancy out of firms. Without it the bloat that collects in companies eventually chokes off efficiency and causes real trouble - as such, we should not be afraid of recessions, even really ugly ones.
Coca-Cola (KO) returned a decent quarter, recording 1 percent case sales growth in America. Sales growth in China and India, where they are still in the process of penetrating, was much stronger, up 6% in China and a whopping 29% in India. EPS was up dramatically to 88 cents with the gain almost entirely due to restructuring and efficiency improvements (again, recessions force efficiency gains, which is a good, not bad, thing!) If there's a bright star in this recession in terms of revenues, it is found in companies like Coke which have managed to avoid the revenue disaster monster.
United Technologies (UTX) recorded a profit down 23% from year-ago numbers; revenues down 17% y/o/y, making them one of the solid "beats" in the 30% club. While 17% is kinda stinky it sure beats 41%, right? Forward guidance on revenues was lowered to $53 billion, down $2 billion however, for the remainder of the year, and this resulted in a tightening of earnings projections toward the lower end of the previous range of $4-$4.20.
All things considered it appears that UTX is the winner this morning in terms of resisting the impact of the recession in the industrial space, but in terms of market reaction CAT clearly wins with a more than 10% move pre-market. Steady-Eddy Coca-Cola is up slightly pre-market right near last night's $51 close.
Oh, and buried in the middle of all of this joy-joy over Caterpillar (and ignored by CNBC, of course) was the ICSC release on chain store sales, down 0.3% week-over-week, now guiding July -5.5% year-over-year.
That better not carry through into August (back to school) or the folks who are clearly looking at the technology sector (Apple after the bell today anyone?) for "big things" come back-to-school time are in for a truly nasty surprise.
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