Caterpillar Inc. on Friday said its third-quarter profit rose 15 percent but sharply reduced its forecast for the full year and said it expects a slowdown in 2007. Its shares sank sharply on the New York Stock Exchange.
The heavy-equipment maker lowered its full-year earnings forecast, citing high operating costs and lower than expected sales volumes and said it expects a slowdown next year as well as new diesel engine emissions regulations take effect.
The company also cautioned that the weak residential housing market in the U.S. and a drop-off in sales of truck engines will restrain revenue growth next year.
During a conference call with analysts, Caterpillar officials called next year’s slowdown a pause, not the end of a sales surge that has doubled the company’s annual revenues since 2002. Energy exploration, mining and infrastructure improvements remain strong worldwide and will continue demand for the company’s trademark yellow earth-moving machines, they said.
For the third quarter, net income grew to $769 million, or $1.14 per share, from $667 million, or 94 cents per share, in the year-ago quarter. The latest period included about $80 million in legal expenses, most to settle a dispute with truck and engine maker Navistar International Corp. over licensing and supply agreements.
Sales jumped 17 percent to $10.52 billion from $8.98 billion a year earlier, boosted by higher prices and increased volumes for both machines and engines. Favorable foreign currency exchange boosted sales by $97 million.
Analysts polled by Thomson Financial forecast earnings, excluding one-time items, of $1.35 per share and sales of $9.87 billion.
The company said it expects full-year revenue of about $41 billion, up about 13 percent from 2005. Caterpillar forecasts profit of $5.05 to $5.30 per share for 2006, with growth coming from higher prices and sales volume.
The forecast is down from Caterpillar’s earlier estimate for earnings of $5.25 to $5.50, on sales and revenue that had been expected to rise 12 to 15 percent. The company attributed the shortfall to increased operating costs, including the third-quarter legal expenses, as well as slightly lower than expected sales volumes.
Analysts project full-year sales of $39.88 billion and profit of $5.52 per share.
Caterpillar also issued a preliminary forecast for 2007 that projects sales will range from flat to up 5 percent. Profit per share is expected to range from flat to up 10 percent from the midpoint of its 2006 forecast of $5.05 to $5.30.
Caterpillar Chairman and Chief Executive Jim Owens said 2007 sales will be slightly higher despite a lowing U.S. economy, weaker housing construction and a sharp drop in sales of on-highway truck engines.
Diesel engine prices are expected to rise next year. That’s because all diesel engines produced starting Jan. 1 must meet new federal regulations that require a 50 percent reduction of nitrogen oxide emissions. Particulate emissions also must be reduced by more than 90 percent from previous government regulations put in place in 2004.
“It’s a testament to the strength and diversity of the industries we serve and the global nature of our products and services that we expect at least modest growth despite a weaker U.S. economy and significant declines in important North American markets,” Caterpillar chairman and chief operating officer Jim Owens said in a statement.
Caterpillar designs and manufactures mining, construction and agricultural machines, as well as engines for earth moving and construction equipment. It also is the world’s leading manufacturer of electrical generators.
