Caterpillar, Inc. (CAT)
Q1 2010 Earnings Call
April 26, 2010 11:00 am ET
Mike DeWalt – Director Investor Relations
Doug Oberhelman – Vice Chairman, Chairman Elect.
James Owens – Chairman, Chief Executive Officer
David Burritt – Chief Financial Officer
Alexander Blanton – Ingalls & Snyder
Mark Koznarek – Cleveland Research Company
Seth Weber – RBC Capital Markets
Ann Duignan – J.P. Morgan
David Raso – ISI Group
Henry Kirn – UBS
Eli Lustgarten – Longbow Research
Joel Tiss – Buckingham Research
Jamie Cook – Credit Suisse
Ted Grace – Avondale Partners
Andrew Casey – Wells Fargo Securities
Barry Bannister – Stifel Nicolaus
Andrew Obin – BofA/Merrill Lynch
Previous Statements by CAT
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Welcome to the Caterpillar first quarter 2010 earnings results. (Operator Instructions) It is now my pleasure to turn the floor over to your host, Mr. Mike DeWalt, Director of Investor Relations.
Good morning, everyone and welcome to Caterpillar’s first quarter earnings conference call. I’m Mike DeWalt, the Director of Investor Relations and I’m pleased to have our Chairman and CEO Jim Owens, our Vice Chairman and Chairman Elect, Doug Oberhelman, and our CFO Dave Burritt with me on the call today.
This call is copyrighted by Caterpillar, Inc. and any use, recording or transmission of any portion of the call without the express written consent of Caterpillar is strictly prohibited. If you’d like a copy of today’s call transcript, you can go to the SEC filings area of the investor section of our cat.com website, or to the SEC’s website where it will furnished as an 8-K today.
In addition, what we’ll be discussing today is forward-looking and involves risks, uncertainties and assumptions that could cause actual results to differ materially from the forward-looking information. A discussion of some of the factors that individually or in the aggregate, we believe could make actual results differ materially from our projections, can be found in our cautionary statements under Item 1A, Risk Factors of our Form 10-K filed with the SEC on February 19, 2010, and also in our forward-looking statements language contained in today’s release.
Earlier this morning we reported results for the first quarter and we updated our outlook for the full year of 2010, and to start this morning, I’ll quickly summarize the quarter and updated outlook, then we’ll take your questions.
Let’s start with the quarter and what a difference a year makes. In the first quarter last year, we were seeing rapidly declining demand, order cancellations, turmoil in credit markets and declining economies across much of the world.
At Caterpillar, we were busy cutting production, costs, employment and working capital. Our major focus was on three goals; maintaining profitability, holding the dividend and maintaining our mid A credit rating, and we were successful at all three.
This year’s first quarter saw a very different picture. Capital markets are in much better shape than last year. Demand for our products is rising, and our we’re seeing it in most geographic regions, although it’s much more robust in the developing countries of Asia, Latin America, Africa, Middle East and the CIS.
We’re also seeing a significant pick up in mining globally. In fact, we’ve already filled our available 2010 production slots for some of our large truck models and are taking orders for 2011.
Demand for after-market service parts in our machinery and engine businesses is very strong and gained steam as we moved through the quarter, and this is usually a good indicator of how much work is getting done in the field, and the strength we’ve seen is encouraging. We’re working with our suppliers and within our own factories to ramp up production, and in some cases, to accelerate plant capacity additions.
In terms of employment, we are able to absorb a portion of the production improvement with the existing work force by winding down the rolling plan shut downs that we used last year to manage production declines. However, we’re also selectively adding to employment to support increasing demand.
We’re seeing employment increases in our factories in Asia and Latin America where the demand improvement is the strongest, and also in key U.S. facilities that are seeing export demand, and the employees in those factories certainly understand the importance of free trade.
I think the contrast between last year and this year can be summed up by saying, last year we were rapidly ramping down and faced a very negative economic climate. This year, we’re rapidly ramping up and are seeing much better prospects for the world economy.
Sales and revenues in the first quarter were $8.2 billion, and that was down about $1 billion from the first quarter of last year. Now, given my positive comments about the economic environment, you may be asking why are sales and revenues lower than the first quarter last year when demand is improving and we’re ramping up production.
Well, there are two main reasons; first, we ended 2008 with a strong order book for mining productions and large engines, and while we saw cancellations, and very few new orders, we did continue to produce and ship mining products, large engines and turbines at relatively good levels throughout the first quarter of 2009.
The second reason is that it does take some time to ramp up, and not just in our factories. Our suppliers are seeing in many cases, dramatically higher demand from us. We’ve increased production schedules throughout the quarter and March was our best month for sales and revenues since the end of 2008.