As for 2010, if Caterpillar knows what is coming, it isn't telling. More likely, it is just too difficult to say. Before Tuesday's release, the highest estimate for the company's 2010 earnings was 19 times the lowest, according to data from Thomson Reuters. As with Caterpillar's sales projections, that is a gap big enough for a bright-yellow hydraulic excavator to drive through.
The big uncertainty concerns the top line, a worry for many other companies and not just Caterpillar. Cost cuts, idled capacity and inventory liquidation can't offset slumping revenue indefinitely. And while they are perfectly legitimate corporate responses to a slack economy, they don't do much for jobs, incomes and, ultimately, a recovery in demand.
This continuing uncertainty over the timing and strength of an upturn in Caterpillar's fortunes puts Tuesday's initial market enthusiasm about its results in perspective. Even though the stock's initial pop of 11% faded somewhat by midafternoon, it still commands a multiple of 26 times 2010 estimated earnings. If only Caterpillar's products could count on pricing power of that magnitude next year.
The big uncertainty concerns the top line, a worry for many other companies and not just Caterpillar. Cost cuts, idled capacity and inventory liquidation can't offset slumping revenue indefinitely. And while they are perfectly legitimate corporate responses to a slack economy, they don't do much for jobs, incomes and, ultimately, a recovery in demand.
This continuing uncertainty over the timing and strength of an upturn in Caterpillar's fortunes puts Tuesday's initial market enthusiasm about its results in perspective. Even though the stock's initial pop of 11% faded somewhat by midafternoon, it still commands a multiple of 26 times 2010 estimated earnings. If only Caterpillar's products could count on pricing power of that magnitude next year.
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