Caterpillar Says China, Not U.S., ‘Has It Right’ on Stimulus

By Melita Marie Garza

April 22 (Bloomberg) -- Caterpillar Inc., the world’s largest maker of bulldozers and earth-moving equipment, said China’s stimulus plan is getting money into the economy faster than the U.S. program that President Barack Obama championed.

“We think China has it right,” Chief Financial Officer Dave Burritt said in an interview after the Peoria, Illinois- based company reported its first quarterly net loss in 16 years. “The majority of their package is on infrastructure spending. We are seeing life there. We are seeing the turnaround. We would like to see a more robust infrastructure package” in the U.S.

Obama visited Caterpillar in Peoria to rouse support on Feb. 12, the day before Congress passed the $787 billion plan, and Chief Executive Officer Jim Owens is a member of his Economic Recovery Advisory Board. Caterpillar yesterday said full-year profit may be half what it predicted in January as a credit crunch and recession cut demand from builders and miners.

“China, with an economy one-third the size of the United States, is allocating over three times as much for infrastructure,” Caterpillar said in an economic analysis in with the earnings report. “Initial results from this package look promising.”

United Technologies Corp. and Eaton Corp. also said they are seeing early results from China.

White House press secretary Robert Gibbs said the U.S. spending represents “the single greatest infrastructure investment in this country” since President Dwight Eisenhower started the interstate highway system in the 1950s. Obama agrees “infrastructure needs have been neglected” and will work with Congress to address additional spending on such projects when the next highway bill comes up, Gibbs said yesterday.

China Spending

Caterpillar said it expects some benefit this year from China, which enacted a 4 trillion yuan ($585 billion) stimulus package and cut central bank interest rates. The actions will let China’s economy grow at a rate of more than 7.5 percent this year, the company said.

The U.S. may disburse as much as $70 billion this year to build infrastructure, about 6.5 percent of last year’s total construction spending and not enough to offset the drop in private projects, Caterpillar said. The U.S. plan included about $28 billion for bridge and highway construction.

“The infrastructure portion of the stimulus package was disappointing in that it was less aggressive than other countries and missed an opportunity to correct past underinvestment in U.S. infrastructure,” Caterpillar said in its analysis with the earnings report.

China Results

United Technologies Corp., Eaton Corp. and DuPont Co. all said they are starting to see results from China’s plan. This week all three reported first-quarter sales declines ranging from 12 percent to 20 percent.

United Technologies’ fire and security division “is seeing some benefits from the stimulus already in terms of the dollars which are flowing through to infrastructure” from China’s plan, Akhil Johri, the head of investor relations, said yesterday. The Hartford, Connecticut-based company makes Otis elevators, Carrier air-conditioners and Pratt & Whitney engines.

At Wilmington, Delaware-based DuPont, the third-biggest U.S. chemical maker, “electronics customers are reporting some benefit from the China stimulus package,” CEO Ellen Kullman told analysts on a call yesterday.

Eaton CEO Sandy Cutler earlier this week described China as “the first market where we can really string things through to government stimulus activity.” Eaton is a Cleveland-based maker of circuit breakers and fuel pumps.

Caterpillar Forecasts

Caterpillar predicted the U.S. recession in October 2007, two months before it officially began, and said yesterday it expects the world economy to decline about 1.3 percent this year. Owens, 63, joined the company in 1972 as an economist.

The first-quarter net loss of $112 million, or 19 cents a share, compared with net income of $922 million, or $1.45, a year earlier. Revenue dropped 22 percent to $9.23 billion.

Excluding some costs for eliminating jobs, profit was 39 cents a share, more than the 5-cent average estimate in a Bloomberg survey of 20 analysts. Caterpillar rose 91 cents to $31.39 in composite trading on the New York Stock Exchange. The shares have fallen 30 percent so far this year.

Full-year profit will be about $1.25 a share excluding severance and other costs, or half the company’s January forecast, Caterpillar said.

During his February visit, Obama said “you can measure America’s bottom line by looking at Caterpillar’s bottom line.”

To contact the reporter on this story: Melita Marie Garza in Chicago at mgarza4@bloomberg.net