Caterpillar Inc (CAT.N: Quote), the world's largest maker of construction and mining equipment, reported its first quarterly loss in 17 years on Tuesday, pulled into the red by more than half a billion dollars in charges from its wave of recession-triggered layoffs.  The company also slashed its full-year earnings and sales forecast.

 But the stock was up 1.7 percent in afternoon trading, erasing earlier losses, after a conference call in which management focused attention on how swiftly Caterpillar had reacted to the downturn -- and how much better key financial metrics were performing than in previous downturns.

 First quarter sales were down 30 percent sequentially, but the gross margin rose, said Alex Blanton, an analyst at Ingalls &  Snyder. And they did that even as they reduced inventories, maintained the dividend and increased cash. That's remarkable.

 During the call, Jim Owens, the company's chairman and chief executive, also gave a relatively upbeat preliminary peek into the company's second-quarter performance.

 There's a reasonable chance that our new 2009 outlook reflects the bottom of this cyclical downturn, he said. In fact, April was the first month since last fall that our near-term sales and operation planning did not result in a drop in the year-ahead forecast. We're certainly not out of the woods yet. But there's reason for some optimism.

BRACING FOR TROUBLE

 Caterpillar, which has eliminated about 25,000 full-time and temporary positions over the past few months, posted a first-quarter loss of $112 million, or 19 cents a share, compared with a year-earlier profit of $922 million, or $1.45 a share. Sales fell 22 percent to $9.2 billion.

 Caterpillar expects full-year earnings of $1.25 a share, before restructuring costs, on sales of $31.5 billion to $38.5 billion. Three months ago, the company forecast profit of $2.50 a share, before restructuring, on sales of $36 billion to $44 billion.

 If full-year 2009 sales come in at the $35 billion midpoint of that estimate range, it would represent a 32 percent drop from 2008 -- and the worst one-year revenue decline since the 1930s.

 Sales of the company's distinctive yellow construction and mining machinery tumbled 29 percent overall, led by a 46 percent decline in sales in Europe, Africa and the Middle East as a result of lower commodity prices and lower oil production.

SAVING CASH

 The results also reflected $558 million in charges Caterpillar booked during the quarter as a result of the layoffs.

 Stripping out those costs, Caterpillar said it made 39 cents a share.  On that basis, the results were better than expected. Analysts, on average had expected Caterpillar to report a profit

of 2 cents a share, according to Reuters Estimates.

 Caterpillar said economic activity had dropped over the past six months but that the rate of decline seemed to be moderating. Even so, it predicted world output would continue to fall in the

near term.

 It said it was taking several steps to conserve cash, including suspending stock repurchases and cutting capital expenditures by $3 billion.

 It also said additional job cuts might be necessary, but that they would likely be handled with flexible and cost-effective rolling layoffs rather than permanent separations.

 In this environment, liquidity is a major focus, Owens said. And as a result we've decided to hold more cash than usual.

 OPTIONS ACTIVE

 The company also said it was authorized to issue more than 25 million shares to make a $650 million contribution to improve the funding status of its U.S. pension plan.

 That would dilute existing shareholders by 4.2 percent and seems to imply, according to JP Morgan analyst Ann Duignan, that the stock is only worth $26 a share.

 Caterpillar shares were up 52 cents or 1.7 percent at $31.00 in afternoon trading on the New York Stock Exchange, after falling as much as 6.5 percent in the morning. Sentiment in the options market is more negative, according to Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Connecticut, with one investor making a big bet the shares are heading for a fresh 52-week low of $21.30 by August.

(Additional reporting by Doris Frankel, editing by Matthew Lewis)

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