Caterpillar Talks “Recession” And The Market Tanks


We expect 2008 to be the sixth consecutive year of sales and revenues growth, despite a US economy near to, or even in, recession.

Many US industries important to our sales are in recession [prominently housing].

Caterpillar 3rd Quarter Earnings Release

If you needed any proof that international companies are driving the economy in the face of a large US slowdown right now, look no further than Caterpillar’s (CAT) 3rd quarter earnings report.

Overall revenues were up 9% and net income 21% but that masks some really important distinctions.

3rd quarter US revenues were down 11% while international revenues were up 31%.

Looking through their report, I am dumbfounded by how strong the rest of the world is and how weak the US is.

CAT’s shares were down 5.27%.

In other earnings news, 3M (MMM), a Dow component along with Caterpillar, reported what looks like a pretty solid quarter (3Q Earnings Release).

The only hitch was some weakness in its LCD film sales for high definition TVs with operating profit down 11% in “optical systems”.  According to a WSJ article (subscription required) on 3M’s earnings report, that has been viewed as a key profit driver for the company and so was received as especially bad news.

3M’s shares were the worst performer in the Dow, down 8.56% on extremely heavy volume.

Other heavy hitters, including Wachovia (WB) and Honeywell (HON) reported earnings that appear to have not been taken well.

On CNBC’s “Fast Money” recession talk was in the air again, probably because of Caterpillar’s comments, and I assume renewed fears of recession played a big role in today’s selloff.

The fact that the Russell 2000, an index of small company stocks that is more heavily dependent on the US economy than the bigger stocks in the Dow and S&P, sold off more than the large cap indexes supports this view.

Here’s how the day looked:

Dow: -2.64%

S&P: -2.56%

Nasdaq: -2.65%

Russell: -3.18%

UPDATE (Sat 10/20, 1:30pm): Another thing that had “recession” in the air yesterday was legendary Tiger Management investors Julian Robertson’s comment early in the morning on CNBC that he was expecting a “doozy of a recession” (Video Clip).

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