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Caterpillar 2Q Profit Falls 21 Percent Send a link to a friend

[July 21, 2007] PEORIA (AP) --

Shares of Caterpillar Inc. tumbled Friday as the heavy equipment maker posted profit that fell 21 percent, missing Wall Street expectations amid weak North American machinery sales and higher-than-expected operating costs.

The company's shares, which had risen to record highs over the last month, fell $3.78, or 4.4 percent, to $83.20 Friday. Shares, which have traded in a 52-week range of $57.98 to $87, had dipped to $78.26 before rebounding in late trading.

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Caterpillar, one of the world's largest heavy equipment makers, said net earnings fell even though revenue rose 7 percent to $11.36 billion _ a company record for the second quarter _ from $10.61 billion last year.

The company cited sluggish housing construction and engine sales in North America, higher than expected operating costs and a planned reduction in inventories for the decline.

Caterpillar earned $823 million, or $1.24 per share, in the three months ended June 30, down from $1.05 billion, or $1.52 per share during the same period last year, when the heavy equipment maker posted its strongest earnings in at least four decades.

Analysts surveyed by Thomson Financial expected a profit of $1.49 a share on revenue of $11.12 billion.

"On the revenue side, no doubt it was a very solid quarter, but if you can't manage costs and get the strong results to flow through to the bottom line investors will get concerned," said Matt Collins, an analyst with Edward Jones.

Alexander Blanton, an analyst with Ingalls & Snyder, called the second-quarter earnings decline a blip, saying the company will continue to ride strong demand fueled by construction in China, India and other rapidly developing nations.

"This is a very strong trend and it's not going to go away. It's a factor of people in emerging countries wanting a better life and they have to have infrastructure to do that," Blanton said.

Caterpillar said overseas sales helped offset sluggish revenue in North America, where machine sales lagged due to a weak U.S. housing market, demand for on-highway truck engines dropped and the company continued a planned reduction in dealer machine inventories.

"We're pleased with second-quarter sales and revenues which demonstrated the strength of our global reach," Caterpillar Chairman and Chief Executive Jim Owens said in a statement.

David Burritt, Caterpillar's chief financial officer, said earnings were hurt by supply chain disruptions, higher-than-expected material costs and manufacturing stops and starts as the company shifts to a just-in-time delivery system.

"We need to tighten our belts. We need to take a fresh look at where we're spending our money to see what we can do," Burritt said.

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Blanton predicted Caterpillar will iron out operating costs over the second half of the year, saying some stemmed from one-time problems such as a supplier that declared bankruptcy.

"These are short-term things and they'll go away," Blanton said.

Owens called second-quarter earnings "disappointing," but said the company is maintaining a full-year outlook that would post record profit for the fourth straight year.

The company has projected full-year revenue of about $44 billion, up from $41.5 billion last year. Profit per share is forecast in a range of $5.30 to $5.80, up from $5.17 in 2006.

Sales outside of North America are expected to be up 24 percent for the year, more than offsetting a projected 12 percent dip in North America, the company said.

Beyond 2007, Caterpillar has projected compound annual growth in profit per share of 15 percent to 20 percent through 2010, with revenue rising above $50 billion.

Burritt said Caterpillar is in the fifth year of a construction equipment sales upturn that historically runs for seven years, based on earlier cycles. He said this cycle could run longer because of ongoing construction in emerging nations and high commodity prices that encourage investment in mining and petroleum exploration.

"There's no magic rule that says cycles last seven years," Blanton said. "It could be nine or 10. We don't know. But they are getting longer."

Caterpillar 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

[Associated Press; By JAN DENNIS]

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