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Caterpillar Inc.'s (CAT) fourth-quarter net income fell 32% on a steep drop in demand at the end of last year, as the global economic downturn worsened and some customers cancelled orders.

The heavy-machinery maker projected 2009 earnings well below analysts' estimates and said it would cut 20,000 jobs, or about 18% of its work force to reflect the lower demand.

The company's shares were down 11% to $31.71 in premarket trading, amid the lower-than-expected estimates.

Looking forward, Caterpillar said it expects 2009 earnings of $2.50 a share on revenue of $36 billion to $46 billion. Analysts were expecting earnings of $4.27 on revenue of $47.27 billion.

Chief Executive Jim Owens said the company saw booming demand in the first three quarters, but added, "Then we were whipsawed in the fourth quarter as key industries were hit by a rapidly deteriorating global economy and plunging commodity prices."

He said the company encouraged dealers to cut back inventory to align with falling volume, so it saw "significant order cancellations" in December.

Caterpillar, which is often seen as a barometer of various segments of the U.S. economy, posted net income of $661 million, or $1.08 a share, down from $975 million, or $1.50 a share, a year earlier.

Revenue increased 6.4% to $12.92 billion.

Owens said 2008 was the company's sixth consecutive year of record sales and revenue.

Analysts surveyed by Thomson Reuters expected earnings of $1.29 on revenue of $12.77 billion.

The U.S. market, where construction spending has been weak, saw sales fall 4%. Meanwhile, sales outside North America rose 13% and made up 64% of total sales, up from 60% a year earlier.

Machinery and engine sales gained 6.7% while the company's financial arm posted a 2.4% increase in financial-products revenue despite turbulence in the financial markets.

Caterpillar has been averse to cutting jobs, and last month announced it would cut more than 800 workers at an Illinois plant, the first time the company has cut full-time workers on a large scale for an indefinite period since early this decade.

The company said last month it would cut executive compensation by as much as 50% for 2009, with lesser cuts for other employees as it struggles to cope with slumping demand. Most U.S.-based employees will also be eligible for buyouts amid a hiring freeze.

The company has benefited from a five-year boom led by emerging markets in big need for the heavy construction equipment made by Caterpillar. During that time, the work force rose nearly 50% to 101,000 as revenue more than doubled. Owens said in November that the company was looking to grow in emerging markets, since it anticpated recessionary conditions in the U.S., Europe and Japan this year.

Fears were elevated about whether weakening conditions in the global construction industry would hurt Caterpillar's results after rival heavy-machinery maker Komatsu Ltd. (KMTUY) issued a profit warning Friday, blaming slumping demand.

As the financial crisis has continued to worsen in recent months, Caterpillar's ability to issue corporate bonds has been hurt. Its finance arm has been driven to offer sharply higher yields on recent bond sales to lure investors.

The company also said it exepcts first-quarter and first-half profits to be "under severe pressure" amid sharply lower production volume and a $500 million redundancy charge, mostly incurred in the first quarter.

Caterpillar said it took a $3.4 billion year-end charge related to declines in pension asset returns, and the charge caused its consolidated net worth to drop below the minimum level required in its $6.85 billion revolving credit facility. The company said its corporate bank has agreed to its net worth level. The company has no borrowings under the facility.

The company is hoping for a boost from Pres. Barack Obama's infrastructure plan, which is expected to raise infrastructure spending to levels not seen since the 1950s.

-By Kerry E. Grace, Dow Jones Newswires; 201-938-5089; kerry.grace@dowjones.com

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