Wednesday, March 10, 2010

"Caterpillar CEO Sees Stronger Rebound Boosting Sales" (CAT)

From the wall Street Journal's Real Time Economics blog:
Sales at Caterpillar Inc. are expected to rise 10%-25% this year on inventory restocking and a stronger global rebound than was initially expected, James W. Owens, the company’s chairman and chief executive, said on Tuesday.

Yet Mr. Owens, who will be retiring as CEO in June, cautioned the outlook remains uncertain and assigned a 25% chance to a “Great Recession”-type of event in which Caterpillar’s sales, which were $32.4 billion in 2009, increase to just $35 billion by 2011.

The company’s current “base case” scenario is for sales to reach $55 to $60 billion during that time, said Mr. Owens, speaking before a lunchtime crowd at a conference held by the National Association for Business Economics in Arlington, Va. “We have to be really nimble,” he said.

Asked about price pressures, Mr. Owens said he expects them to be minimal. In 2009, the company’s total material costs declined on a world-wide basis, and he said he expects that to happen again this year.

“We’re not seeing a lot of risk of inflation,” said Mr. Owens, an economist by training who has served as Caterpillar’s chief executive since 2004.

Avoiding deflation, a situation in which prices and wages enter a downward spiral, “is critically important,” said Mr. Owens. “Modern industrial economies don’t know how to deal with deflation… I think the Fed gets that.”

The biggest force driving the company’s sales increase this year is the inventory cycle, he said. Caterpillar reduced nearly $3 billion in dealer inventory last year, and the absence of a similar decline this year “means a big pop in sales.” Mr. Owens had high praise for the Federal Reserve’s actions during the credit crisis under Chairman Ben Bernanke. “I don’t think I could be more complimentary of what the Federal Reserve has done, in particular seeing us through this horrific recession,” he said. “The decisions… may not have been perfect but I think they have served us extraordinarily well in preventing an outright depression.”>>>MORE