Longbow Research analyst Eli Lustgarten reduced his earnings estimates for Caterpillar (CAT) for the fourth quarter and for 2009. For the fourth quarter Lustgarten reduced his estimate from $1.42 to $1.32. For fiscal 2009, hereduced his estimate from $6.00 to $5.90. The reductions were made following the results of a November rental construction equipment survey.
Survey results indicate:
- Current demand has softened materially as respondents reporting higher demand declined sharply. Those who reported flat demand year over year versus the past several months fell near-term, while lower responses were up significantly. Respondents reporting higher results fell off a cliff at 7% (vs. 26% in September-October).
- Pricing appears to have weakened significantly in November-December, accelerating the trend seen in the past few months. Overall, 81% of contacts reported decreased pricing in November-December (vs. 41% in September-October).
- Capacity utilization also moderated significantly, with 25% of those surveyed (vs. 29% in September-October) reporting utilization greater than 75%, and 75% (vs. 71%) operating between 50% and 75% as demand has decreased in the current weak economic environment.
- Purchase intentions were down noticeably this month with only 26% (vs. 34% in September-October) wanting to buy more over the next year and 43% (vs. 25%) wanting to buy less. Plant shutdowns and lack of financing for construction projects appear to be trumping the expiration of the increased depreciation incentives at year-end 2008. Anecdotal evidence suggests that economic concerns are continuing to weigh heavily on purchase intentions.
- Outlook for the next 9 to 12 months was by far the most negative this month compared with what we have seen in the past 17 months we have conducted the survey. Twenty-six percent anticipate higher levels of activity in the coming 9 to 12 months, the lowest number in the past year (vs. 38% in September-October); 33% (vs. 17%) had a negative outlook for the next 9 to 12 months. This is a new low for the 17 months tracked.
- We are reducing our F2008 and F2009 EPS projections for CAT; 4Q08 is being reduced by $0.10 to $1.32 reducing our F2008 full year EPS estimate from $6.00 to $5.90 (consensus $5.95); F2009 EPS goes from $5.60 (sales down 2%) to $4.00(sales down 8% to 10%; consensus $4.82)
- No change to our current F2009 estimates in DE, IR and CMI which have all been reduced in the past several weeks. No change in our current Neutral ratings for CAT, DE, IR and CMI
For additional information, contact David R. Evanson, devanson@comcast.net.