REUTERS SUMMIT-UPDATE 1-CAT exec reaffirms '09 outlook

Wed Feb 25, 2009 12:33am GMT

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(For other news from the Reuters Manufacturing Summit, click here)

* Says company stands by '09 sales, profit forecast

* Says credit market strains persist

* Predicts U.S. stimulus to gain traction in late '09 (Adds comments from Rapp)

By James B. Kelleher

CHICAGO, Feb 24 (Reuters) - A top executive at Caterpillar Inc (CAT.N), the world's largest maker of construction and mining equipment, reiterated the company's revenue and profit forecast for 2009 on Tuesday even as he acknowledged he was seeing few signs the troubled global economy was stabilizing.

Speaking at the Reuters Manufacturing Summit in Chicago, Ed Rapp, a group president at Caterpillar, said the company's view on 2009 sales and profits "hasn't changed."

Even so, Rapp said the company's concerns about the credit markets persisted and he said that government efforts to stabilize the troubled banking sector had not driven down borrowing costs for captive finance companies like the one he oversees at Caterpillar.

He said that much of the liquidity being pumped into the banks wasn't being loaned out to companies looking to buy new equipment because of the pressure bankers are under to bolster their own capital positions.

"Right now, the premiums that you're paying in a private market, with no government guarantee, are 250 to 300 basis points," he said.

"And so it's working at cross purposes to what the stimulus package and the government package are after."

Rapp, one of the six executives directly under Chief Executive Jim Owens who run day-to-day operations, predicted that the U.S. government's efforts to stimulate the economy would lead to some improvement toward the latter end of 2009. He said he believed that any recovery in the global economy would start in the United States and China before spreading to Europe and Japan.

But a critical key he said was stabilizing house prices, which fell 18.5 percent from a year earlier in December, according to the S&P/Case Schiller home price index released on Tuesday.

"If you go back to where all this started, what really tipped it over was the decline in housing prices," he said.

"So if I could have a magic wand, and one thing would change, it would be to stabilize housing prices," Rapp said. "I think that would be the first step that would lead us on a better path."

He said he doubted that efforts by rivals like Terex Corp (TEX.N) to generate cash by bringing inventories down would spark a price war in the construction equipment space.

"It's apparent to us that most people in our industry have been very aggressive in adjusting production to align with sales," he said.

"I think everyone understands that it's to nobody's benefit to have an excess level of inventory. So I think the industry has been responsible in that regard.

He also said that the industry was dealing with "a pretty significant hangover effect" from higher steel and other input costs last year that had wound up in products that wouldn't leave the factory until later this year.

"If you look at how long it took for some of the material costs to pass through, and the combination of reduced volumes ... I think that everybody is going to be respectful of the fact that there is still a material cost that you have to cover out there, which hopefully will lead to a little more pricing integrity," he said.

(For summit blog: summitnotebook.reuters.com/) (Reporting by James Kelleher; Editing by Gary Hill)