Caterpillar's stock has gotten pummeled recently, which explains why after posting results that were better than expected the stock has seen a big short squeeze, pushing it up 4% in thin pre-market trading. Of note, the company reported EPS of $2.54 on Expectations of $2.28, and revenues of $17.4 billion on estimates of $17.1 billion, yet it cut its full year revenue guidance from $68-72 billion to $68-70 billion on what it says is a weaker economy and a stronger dollar: "From the time the previous outlook was first established in January of 2012, the U.S. dollar has strengthened versus most currencies around the world. That has negatively impacted the full-year outlook by about $1 billion as sales in currencies other than the U.S. dollar are translating into fewer U.S. dollars. While the world's economic environment is weaker than we had expected, our sales have continued to grow." Yet what is most curious is that even CAT has become schizophrenic with respect to the Fed, in one bullet point saying the Fed's easing has done nothing to "benefit economic growth" yet in another claiming more easing will not come "soon enough to benefit growth in 2012." The Bernanke put is now so pervasive even non-financial companies have to rely on the Chairman getting out of bed at just the right angle and sitting down on the CTRL-P macro.
From CAT's earnings release [5]:
- The U.S. Federal Reserve's balance sheet expansion in the first half of 2010 benefited the economy, but those gains seem to be slowing. Banks are expanding credit at a moderate rate, but money growth is slowing. We have not detected much benefit to economic growth from the central bank's policy of lengthening the maturity of its securities.
- Eventually, we expect the U.S. Federal Reserve will resume expanding its balance sheet, but not soon enough to benefit growth in 2012. We believe modest recovery will continue in the United States, with economic growth slowing to slightly more than 2 percent in 2012.
Those curious if CAT had something to say about China will be satisfied, if not with the answer:
We believe China's economic growth will slow to about 8 percent in 2012.
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In China, we are lowering production levels and have started to export machines to other regions of the world. However, the construction industry in China is still weak and our dealers are reducing their inventories of new machines, further reducing our shipments. While our inventory of new machines in China increased, the combination of our finished inventory and dealer machine inventory was about flat with the end of the first quarter of 2012. We are working to lower finished inventory, but given the weak construction equipment industry in China it will be a gradual reduction throughout 2012. We are being appropriately cautious—we intend to lower inventory, but are considering our supply chain and are acting in an orderly manner. In addition, we are trying to balance our actions—the industry in China has been weak over the past year, but can move quickly when it turns around.
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As we began 2012, our expectations for sales in China were higher, and we built substantial new machine inventory in the first quarter to support what is usually a seasonally strong quarter. First-quarter sales were lower than expected, and we ended the first quarter with higher inventory in China. We developed and are executing a plan for an orderly reduction of China inventory that includes lower production, merchandising programs to improve sales and the export of machines from China to other parts of the world.
We remain very positive on long-term industry growth in China and our strategy to grow our business there. Our plans for the remainder of 2012 reflect an orderly ramp down of production that considers our entire supply chain in China. Given the current low rate of sales and the production ramp down, it will likely take the rest of 2012 to reduce inventory to appropriate levels.