AP News, January 26th, 2007
Heavy equipment maker Caterpillar Inc. said Friday that higher operating costs trimmed fourth-quarter profit growth to 4 percent, but predicted strong results for 2007 despite an expected slowdown in U.S. machine and engine sales.
The forecast sent the company's shares up more than 2 percent in trading on the New York Stock Exchange, even though it mirrored a revised outlook issued three months ago that predicted Caterpillar's four-year sales surge would slow this year.
"I think people were just relieved they didn't lower it any more," said John Kearney, an analyst with Morningstar.
Net income for the fourth quarter grew to $882 million, or $1.32 per share, up from $846 million, or $1.20 per share, a year ago. But earnings fell short of Wall Street's expectations as higher production costs offset strong sales. Analysts surveyed by Thomson Financial predicted earnings per share of $1.34.
The company said revenue for the quarter that ended Dec. 31 rose 14 percent to $11 billion, up from $9.66 billion a year ago.
Caterpillar's full-year profits for 2006 topped $3.5 billion, up 25 percent from about $2.8 billion in 2005. Profit per share rose to $5.17 last year from $4.04 in 2005.
Full-year revenues climbed 14 percent to $41.5 billion from $36.3 billion in 2005.
Caterpillar, the world's largest maker of earth-moving equipment, posted its third straight year of record profits and revenue in 2006 and forecast another record year in 2007.
"I'm anticipating great things for Caterpillar in 2007. Despite a sharp decline in two key North American industries _ on-highway truck engines and U.S. housing _ and an expected reduction in dealer inventories, we are projecting another record year in 2007," Chairman and CEO Jim Owens said in a statement. "We expect to improve profit per share at a higher rate than sales and revenue, and that means a key focus in 2007 will be cost management."
The company predicts revenue in a range from $41.5 billion to $43.6 billion, which is flat to up 5 percent. Profits are forecast in a range from $5.20 to $5.70 per share.
Owens said during a conference call with analysts that Caterpillar expects to focus on cost management, such as improved production efficiency.
"We think we can do better, much better," said chief financial officer David Burritt.
Caterpillar said last year that a four-year sales surge would slow in 2007, with a weak residential housing market and drop in sales of truck engines holding back revenue growth.
But the company called the slowdown a pause, not the end of a sales increase that has doubled revenues since 2002.
Morningstar's Kearney agreed, saying the company's sales upswings generally last for seven or eight years.
"There's still some legs to this cycle," Kearney said.
Owens said next year's expected housing construction and engine sales slowdown in North America will be offset by strong sales overseas, particularly equipment for mining and oil and gas exploration.
Alexander Blanton, an analyst with Ingalls & Snyder, predicted the U.S. economy will be stronger than Caterpillar expects, reducing the company's projected declines in engine and machinery sales.
"I think the forecast is conservative," Blanton said. "They've been conservative every year and I expect they're being conservative this year, too."
Looking beyond 2007, Owens said the company projects revenues will top $50 billion, with compound annual growth in profit per share of 15 to 20 percent from 2005 to 2010.
Caterpillar shares rose $1.46, or 2.4 percent, to close at $61.00 Friday. Its shares have traded in a 52-week range of $57.98 to $82.03.
The company designs and manufactures construction and mining equipment, as well as engines for earth moving and construction equipment. It also is the world's leading manufacturer of electrical generators.
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On the Net:
Caterpillar Inc. http://www.cat.com
