Coal mining, heavy construction and power generation, along with cost cutting, helped Caterpillar earn a profit in 2001 despite a recession and slow truck engine sales, and the company is predicting a slightly better year for 2002.

Caterpillar reported fourth quarter 2001 sales and revenues of $5.10 billion,
compared with $5.11 billion in the fourth quarter of 2000. Profit before non-recurring charges was $264 million, about the same as last year.
For the full year, sales and revenues were $20.45 billion, or $275 million higher than 2000. Before nonrecurring charges, 2001 profit was $902 million, down 14%.
"In a year of extraordinary challenges, including a U.S. recession, Caterpillar's diverse base of businesses, products and geographic regions helped us turn in a profit performance that -- excluding nonrecurring charges -- accomplished what we said we would do," said Caterpillar Chairman and CEO Glen Barton. He also said that the company would continue cost reduction efforts launched last year with a goal to trim more than $1 billion from the year 2000 cost base. Barton specifically noted Caterpillar’s $30 million investment in 6 Sigma process improvement methodology, which “paid for itself in less than one year.”
Sales in 2001 were up primarily on the strength of the worldwide coal mining and heavy construction industries, driven in part by strong demand for energy and equipment to rebuild U.S. highways as part of the nation's transportation improvement program, the company said. Sales into the waste handling industry were also strong. Electric power sales enjoyed another record year, and sales into the petroleum sector were significantly higher, benefiting both reciprocating and turbine engines.
However, worldwide engine sales were down slightly, the result of weak demand for truck engines as the severe trucking industry downturn continued. Higher sales volumes were partially offset by the unfavorable impact of the stronger U.S. dollar on sales denominated in currencies other than U.S. dollars (primarily the Euro and Australian dollar).
Record sales of its electric power engines and strong sales of reciprocating and turbine engines into the North American petroleum sector offset weaker on-highway truck engines sales in North America, the company said. Caterpillar engine sales for the fourth quarter were $1.94 billion, down 2% from fourth quarter 2000. The company said higher physical sales volume was more than offset by lower price realization. Engine operating profit was $39 million, down $153 million from a year earlier.
Engine sales for the year were $6.87 billion, down 3% from 2000. Operating profit was $348 million compared to $667 million the previous year. Caterpillar said the decline was primarily due to the lower price realization, impact of manufacturing inefficiencies related to sharp production swings, and a non-recurring restructuring charges.
Machinery sales were $2.8 billion, about flat compared with fourth quarter 2000. Operating profits were $137 million, down $111 million from a year ago. Machinery sales for the year were $12.16 billion, up 3% from 2000. Machinery operating profit was $849 million compared to $1 billion the previous year.
Caterpillar Financial Products reached record revenue levels of $1.42 billion, a 13% increase from 2000. The increase is attributed to Caterpillar Financial Services Corporation's (Cat Financial) ability to generate new retail financing in line with its strategy to provide services to a broader range of customers worldwide.
"Based on the global industry outlook, we expect both industry and company sales to be about flat in 2002," Barton said. "However, we expect profit to be up slightly in 2002 compared with 2001, excluding nonrecurring charges, because of the strategic actions announced in the fourth quarter and continued aggressive cost reduction efforts."
Caterpillar is predicting that, after a severe slowdown in 2001, world economic growth, as well as growth in industrial production, will improve gradually over the course of 2002. This improvement will be driven by lower interest rates and energy costs around the globe, combined with significant fiscal stimulus in North America.
While world growth is expected to improve gradually, momentum is expected to build from very weak activity levels at the beginning of 2002. As a result, world growth is expected to be about flat in the first half -- a significant slowdown from growth rates in the first half of 2001 -- before picking up momentum and closing the year with annualized growth rates approaching 3%.
In the United States, even though a supplementary fiscal stimulus package was not approved, Congress approved an increase for transportation funding in 2002, the company noted. Leading economic indicators began recovering at the close of 2001 as consumer spending and expectations rebounded from the retrenchment after the Sept. 11 terrorist attacks. As a result, the U.S. economy is on track for flat to slightly positive growth in the first quarter, followed by stronger growth in the second, and gaining momentum in the third and fourth quarters of 2002. The Canadian economy will track the U.S. closely, and consumer spending and housing in Canada will benefit as well from scheduled personal tax reductions.
Industry sales of construction and industrial machines are projected to be flat to down slightly in most sectors. Coal mining is expected to be down moderately. Reciprocating and turbine engine sales are expected to be flat to up slightly. As a result, Caterpillar sales in North America are expected to be about flat.
Growth in Europe is expected to lag the recovery in North America by about a quarter. Caterpillar expects a weak first quarter to be followed by a flat second quarter and improving growth in the second half of 2002. In Asia/Pacific, business conditions are expected to improve in developing Asia in the second half of 2002 in response to the U.S. recovery, but Japan is expected to remain weak and continue to be a drag on the regional recovery. Growth in China is expected to continue at a solid rate, leading to higher sales, and sales in Australia are expected to be up slightly. Company sales in the region are expected to be down slightly.
In Latin America, business conditions in Mexico are expected to improve in conjunction with the U.S. recovery, while power shortages in Brazil are expected to become less acute in 2002. There was a sharp increase in political and economic uncertainty in Argentina at the end of last year. Caterpillar said its outlook assumes that the majority of the negative shocks to machine and engine industry demand will be confined to Argentina. Company sales for the region are expected to be down slightly.