UPDATE 5-Caterpillar unveils huge job cuts as profit falls

* Earnings tumble 32 percent

* Warns 2009 profits under severe pressure

* Announces nearly 20,000 job cuts and buyouts

* Company dealing with "seismic" shift in demand - CEO

* Shares fall nearly 10 percent
(Adds company comments from conference call, analyst comments,
updates share movement)

By James B. Kelleher

CHICAGO, Jan 26 (Reuters) - Caterpillar Inc (CAT.N: Quote, Profile, Research)
announced it would cut nearly 20,000 jobs and warned of a tough
year ahead as a downturn that began in the United States
metastasized into a full-blown global recession, gutting orders
for earth-moving equipment.

The world's largest maker of construction and mining
machines, which also reported lower-than-expected fourth-quarter
earnings, said on Monday it was laying off 17,000 workers, and
buying out 2,500 others, to reduce costs in the face of what it
predicted would be the weakest year since the end of World War
Two.

The company slashed its outlook for 2009 and seemed to raise
the possibility that it would report a loss in the current
quarter -- its first since 1992.

"We pretty much hit a wall in December," Jim Owens, the
company's chief executive, said in call with investors.

The news sent Caterpillar shares skidding as much as 10
percent on the New York Stock Exchange.

Owens said the company had been "whipsawed" by a rapidly
deteriorating global economy and plunging commodity prices.

He said Caterpillar had reacted by encouraging dealers to
align their inventory levels with falling volume and "they
responded with significant order cancellations, particularly in
December."

The layoffs and buyouts, to hit one in every 10 regular
workers and idle 8,000 contract workers, represent the biggest
wave of job cuts at Caterpillar since the early 1980s, when the
company was losing about $1 million a day.

The company also said it was freezing salaries of most
employees, significantly reducing the total compensation of
executives and senior managers, putting several facilities on
shortened workweeks, and subjecting thousands of employees to
temporary layoffs.

The company reported a fourth-quarter profit of $661
million, or $1.08 a share, compared with $975 million, or $1.50
a share, a year ago.

Sales rose 6 percent to $12.92 billion.

The company attributed the drop in profitability to
significantly higher operating costs in its manufacturing
operations as capacity utilization plunged. It also blamed a
sharp decline in profit in its captive finance unit.

Analysts on average expected the company to report a profit
of $1.28 a share on sales of $11.97 billion.

Looking forward, Caterpillar slashed its outlook for 2009,
saying sales could tumble as much as 32 percent to $40 billion.
It also said full-year earnings per share before costs
associated with the job cuts could fall to just $2.50, compared
with last year's $5.66. During the conference call, Owens said
Caterpillar was bracing for what he characterized as a "seismic"
change in sales and revenue in the coming year.

"If this comes to fruition, it says a lot of bad things not
just for Caterpillar but for the economy as a whole," said
Morningstar analyst John Kearney.

During the call, Mike DeWitt, the company's head of investor
relations, warned that Caterpillar might even post a loss in the
first quarter -- its first in 17 years.

"December was absolutely atrocious," said Kearney. "It looks
like that is definitely going to spread into the first quarter
and maybe get even worse. It's certainly an ugly outlook for at
least the first half of 2009."

After shrugging off the downturn in U.S. housing that
sparked the worldwide crisis, Caterpillar and other makers of
bulldozers, dump trucks and excavators have suddenly faced a
world of challenges, including a drop in spending by their
well-heeled energy and mining customers.

"We knew Caterpillar was going to be a disaster." said Eli
Lustgarten, an analyst at Longbow Research. "We just didn't know
the magnitude of it. And it's ugly."

Caterpillar shares were down $3.46 or 9.7 percent at $32.20
in early afternoon trading, off an earlier low of $31.92.
(Additional reporting by Leah Schnurr in New York, editing by
Steve Orlofsky and Matthew Lewis)