Caterpillar Inc. announced record sales and revenues of $51.324 billion for 2008, up 14 percent from 2007. Profit per share was $5.66, up 5 percent and profit after tax of $3.557 billion was about flat with 2007. The company also reported record fourth-quarter sales and revenues of $12.923 billion, 6 percent higher than the fourth quarter of 2007. Profit per share for the quarter was $1.08, down 28 percent from the fourth quarter of 2007.
At the same time, the company announced that it is taking assertive action to respond to the global recession and lower outlook for 2009.
"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."
For the year, sales and revenues increased $6.366 billion- $3.816 billion from higher sales volume, $1.352 billion from improved price realization, $653 million from the effects of currency, $284 million from higher Financial Products revenues and $261 million from the consolidation of Caterpillar Japan Ltd. (Cat Japan). Profit for 2008 was about flat with 2007, with the positive impact of higher price realization, improved sales volume and lower income tax expense about offset by higher operating costs, especially material and freight costs.
Fourth-quarter sales and revenues of $12.923 billion increased $779 million from the fourth quarter of last year. Higher sales volume of $494 million, improved price realization of $308 million, $261 million related to the consolidation of Cat Japan and $19 million from higher Financial Products revenues were partially offset by $303 million of lower sales from the effects of currency. Fourth-quarter profit of $661 million decreased $314 million as significantly higher Machinery and Engines operating costs and a sharp decline in profit related to Financial Products, more than offset a $409 million favorable tax item and favorable price realization.
"Fourth-quarter profit was disappointing, particularly in light of record fourth-quarter sales and revenues and a significant favorable tax adjustment," Owens said. "Fourth-quarter costs included transitional expenses as we moved to lower volumes and initiated production cuts. In addition, Financial Products results were impaired by financial market turbulence. It is now clear that we need to sharply lower our production and costs, and aggressive actions were triggered in December," Owens said.
Outlook: Declining Conditions
Global economic conditions and key commodity prices have continued to decline significantly. Financial markets remain under stress, and our expectations for 2009 have deteriorated. Uncertainty around the depth and duration of this recession makes it very difficult to forecast sales and revenues. As a result, Caterpillar is rapidly executing strategic "trough" plans and implementing actions throughout the company to deal with a very challenging global business environment. We have initiated actions which will remove about 20,000 workers from our business and every indirect spend dollar will be heavily scrutinized. These actions support lowering our production costs in line with a 25-percent decline in sales volume and reducing Selling, General and Administrative (SG&A) and Research and Development (R&D) costs supporting our Machinery and Engines business by about 15 percent. We are encouraged by government stimulus programs and actions taken by central banks around the world to spur growth. However, economic conditions remain uncertain, and we are planning for 2009 sales and revenues to be in a range of plus or minus 10 percent from $40 billion. At $40 billion in 2009 sales and revenues, the company expects to achieve profit of $2.50 per share, excluding redundancy costs.
"These are very uncertain times, and it's imperative that we focus Team Caterpillar on dramatically reducing production schedules and costs in light of poor economic conditions throughout the world," Owens said. "While it's painful for our employees and suppliers, it's absolutely necessary given economic circumstances. We expect to have most of the actions needed to lower employment and cost levels in place by the end of the first quarter," Owens added.
"Without a doubt, 2009 will be a very tough year, but it's important to remember that economic cycles aren't new, and we will emerge from this even stronger than we are today. Throughout our 83-year history Caterpillar has successfully managed through the Great Depression, several recessions, a world war and numerous other adversities. We're a strong company with a management team that's been through tough times before. We are the global leader, with an unparalleled dealer network. We've strengthened our market position in past recessions, and we have done so over the past few months. In addition, we will continue to invest in product technology and operational efficiency through these tough times," Owens added. "When the economy does recover, the need for better housing, roads and capacity for energy and mining will still be there, and we will be prepared to respond."