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By This Measure, a Battered Bottom Line

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By Steven Mufson
Washington Post Staff Writer
Wednesday, April 22, 2009

Two months ago, President Obama visited the Peoria, Ill., headquarters of Caterpillar and declared that "you can measure America's bottom line by looking at Caterpillar's bottom line."

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Yesterday Caterpillar issued its earnings report for the first three months of the year and the bottom line was not pretty. The heavy-equipment maker, which Obama had visited while campaigning for his stimulus bill, posted its first quarterly loss in 16 years, saw sales slump 22 percent and slashed in half its January forecast for this year's profits.

"A great deal of uncertainty exists in the global economy, making it extremely difficult to know how our customers will respond during the remainder of 2009," Caterpillar chief executive Jim Owens said in a statement.

About halfway through the corporate earnings season, the profit and loss statements of the world's biggest businesses -- Coca-Cola to DuPont, Alcoa to Nokia and Intel to Merck -- have provided ample evidence that the economy has suffered one of its sharpest downturns since the 1930s.

The severe recession has taken a toll on workers and employers alike. At Caterpillar, for instance, the company has cut 10,000 full-time jobs since the end of 2008 and dropped 15,000 part-time and contract employees. The maker of tractors and bulldozers said in a news release yesterday that "depending on business conditions, more layoffs and reductions may be required as the year unfolds." It posted a first-quarter loss of $112 million -- a huge falloff from the $922 million it earned in that period a year earlier.

Uncertainty about future business conditions has been a refrain for America's corporations. Many companies say they aren't sure whether the economy is hitting bottom, and they are waiting for government stimulus and lending programs to take hold.

What glimmers of good news have arrived in recent days have often involved companies reporting profits that exceed the low expectations of analysts. Some firms see signs that the economy is turning around and that inventories of unsold goods have been reduced, setting the stage for better sales in the months ahead.

Last week, Paul Otellini, chief executive of computer chipmaker Intel, said that the personal computer market might have "bottomed out." Yesterday, DuPont, the third-biggest U.S. chemical company, predicted an improvement in sales because its industrial customers will need to begin buying more to meet consumer demand, even if that demand remains weak.

"We expect sales in the second quarter to be flat to slightly up from the first quarter," DuPont chief executive Ellen Kullman said on a conference call with analysts and investors yesterday.

Optimism about an eventual recovery has also fueled a handful of corporate takeovers, including cash-rich Oracle's $7.4 billion bid this week for Sun Microsystems. For firms with cash or borrowing power, low stock prices present an opportunity to cheaply acquire valuable assets.

But other companies expect new challenges, especially in coping with tight credit conditions and a rising number of credit card and commercial real estate defaults. Capital One Financial, the McLean-based credit card company, reported a $112 million loss late yesterday and said it was adding $124 million to reserves in anticipation of more bad loans. U.S. Bancorp yesterday said that its first-quarter profit fell 61 percent, beating analysts' low expectations. But the Minneapolis-based bank also set aside $1.32 billion for future commercial and consumer loan losses. The percentage of the bank's total loans written off as not being repaid increased to 1.72 percent from 0.98 percent a year earlier.

The uncertain prognosis for the ailing U.S. economy is complicating the decisions of both investors and policymakers.


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