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Caterpillar Raises Full-Year Guidance Despite 66-Percent Drop in Q2 Profits

Caterpillar reported a 66-percent drop in second-quarter profit last week, while raising its full-year guidance as aggressive cost-cutting measures showed signs of effectiveness and, the company said, stimulus programs were starting to support global demand. Redundancy costs relating to reducing employment were $85 million before tax or $0.12 per share in the quarter. Sales and revenues of $7.98 billion were down 41 percent compared with $13.62 billion in the same quarter last year.

“There is still a great deal of economic uncertainty in the world, but we are seeing signs of stabilization that we hope will set the foundation for an eventual recovery,” said Caterpillar CEO James Owens. “Credit markets have improved significantly. Fiscal policy and monetary stimulus have been introduced around the world, and we are seeing signs, particularly in China, that they are beginning to work.”

Net income dropped to $371 million, or 60 cents a share, compared with $1.11 billion, or $1.74 per share, in the second quarter of 2008.

Caterpillar predicted full-year profit of $1.15 to $1.25 per share. The company predicts sales of $32 billion to $36 billion for the full year. The company said demand for machinery remains weak and predicted its third-quarter sales will be the weakest of the year as dealers delay ordering new equipment to eliminate an estimated $1.5 billion of inventory during the second half of 2009. The company, which has laid off more than 17,000 full-time employees since the end of 2008 and cut more than 17,000 temporary and part-time workers, will likely institute more temporary layoffs in the third quarter along with rolling factory shutdowns.

Caterpillar reduced inventory in the second quarter by more than $800 million, and through the first half of the year, inventory has declined by more than $1.6 billion.

“In addition to our ability to generate solid profits in this economic climate, I’m pleased with our work to generate positive cash flow and maintain considerable financial strength during this challenging period,” added Owens.

Caterpillar, the world’s largest construction equipment manufacturer, is based in Peoria, Ill.

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