Caterpillar’s 2Q profit down on lower sales, redundancy costs

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Caterpillar Inc. today, July 21, reported a second-quarter profit of $371 million for the three months ended June 30 compared to earnings of $1.106 billion during the same period in 2008. Redundancy costs related to reducing employment were $85 million before tax. Sales and revenues of $7.975 billion were down 41 percent from $13.624 billion.

“Our profit this quarter, despite the sharp decline in sales, is a tribute to Team Caterpillar’s response to this severe global recession and the continued deployment of our economic trough strategy,” said Jim Owens, chairman and chief executive officer of the Peoria, Ill.-based company. “There is still a great deal of economic uncertainty in the world, but we are seeing signs of stabilization that we hope will set the foundation for an eventual recovery. Credit markets have improved significantly. Fiscal policy and monetary stimulus have been introduced around the world, and we are seeing signs, particularly in China, that they are beginning to work. In addition, we’ve seen many key commodity prices increase from their lows in the first quarter, and they are holding in a range that is usually positive for investment.”

“With our dedicated employees, strong dealer network and supply base, great lineup of products and the increasing impact of integrated service businesses, I am more confident than ever that we will strengthen our industry leadership as we work through this recession,” Owens added.

The company said the decline in second-quarter profit was largely a result of lower sales volume and redundancy costs, but that those negative impacts were offset partially 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.

In addition to profit, Caterpillar said it is focused on delivering positive cashflow in 2009 and is committed to its $3 billion inventory reduction goal for the year. Utilizing the Caterpillar Production System (CPS) with 6 Sigma, the company said it 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 addition to our ability to generate solid profits in this economic climate, I’m pleased with our work to generate positive cashflow and maintain considerable financial strength during this challenging period,” Owens said. “Team Caterpillar is now halfway through one of the most challenging years in the company’s history. Our 2009 sales have been hurt by weak end-user demand and significant reductions in dealer inventory. In fact, dealers have reduced their machine inventories by about $1.5 billion through the first half of the year and could reach close to $3 billion by yearend.”