Caterpillar Affirms 2008 Outlook

[January 26, 2008]  CHAMPAIGN, Ill. (AP) -- Construction-equipment maker and economic bellwether Caterpillar Inc. said Friday that it expects resilient overseas economies to drive strong sales and profit growth this year, even as the United States teeters toward recession.

The company said its fourth-quarter earnings rose 11 percent on strong international sales, helped along by a weak U.S. dollar that makes American products more affordable.

Peoria, Ill.-based Caterpillar's earnings report followed similar, good-new-, bad-news reports from other major manufacturers this month, all of them struggling at home but riding a wave of growth abroad.

The company earned $975 million, or $1.50 per share, compared with $882 million, or $1.32 per share a year earlier.

Revenue rose 10 percent to $12.14 billion from $11 billion in the prior-year period.

Analysts were expecting a profit of $1.50 per share on revenue of $11.79 billion, according to a poll by Thomson Financial.

Caterpillar Chief Executive Officer Jim Owens said strong economic growth outside the United States would offset weak domestic demand.

"Global markets for mining, energy and infrastructure development are booming," he said in a statement.

Caterpillar expects U.S. economic growth to slow to 1 percent this year, including continued weakness in home construction.

The company is predicting profits will grow by 5 percent to 15 percent in 2008, and sees revenue rising 5 percent to 10 percent year-over-year. The prediction implies 2008 profit of $5.64 to $6.18 per share on revenue of $44.06 billion to $46.16 billion.

"While we expect anemic growth in the U.S. economy, we continue to see positive conditions for our sales in most of the rest of the world," Owens said.

"We expect the world's robust investment in infrastructure to continue well into the next decade, and we'll need more capacity to serve our customers," he said.

Caterpillar shares rose 68 cents, or 1 percent, to close at $65.93 Friday.

Caterpillar has continued to expand beyond U.S. borders in recent years. Almost 60 percent of its fourth-quarter sales were outside North America. That's almost 10 percent more than a year earlier, but Caterpillar expects it to increase even more this year.

The company said it benefited from the weak dollar, which makes American products cheaper overseas. Currency fluctuations added $334 million to fourth-quarter revenue, Caterpillar said.

Similarly, United Technologies, a conglomerate whose subsidiaries include engine-maker Pratt & Whitney and the Carrier heating and air conditioning business, this week reported a 23 percent quarterly profit. The company credited strong global sales.

And General Electric last week said overseas demand for its power turbines and jet engines drove its 4 percent fourth-quarter profit growth.

"Without a doubt, it is a global industry," said Matt Collins, an analyst for Edward Jones.

"You look across the industrial group, the GEs, the United Technologies, the Honeywells of the world," he said, "on average you'll see 40 or 50 percent of sales outside the United States."

Morningstar analyst John Kearney doubts Caterpillar can maintain the 30 percent to 40 percent growth the company managed in some of its overseas businesses last year. But even with a pronounced slowdown Caterpillar could record double-digit growth in international sales.

"As long as there's not a global recession, I guess, I think they can weather a weaker U.S. market," he said.

For the quarter, Caterpillar's profit was up 7 percent to $619 million in its machinery segment and up 14 percent to $571 in engine sales.

Caterpillar's sales by region illustrate just how the weakening American economy affected the company.

Revenue from the sale of heavy machinery such as bulldozers dropped 7 percent in North America but rose by 40 percent in Asia and the Pacific and 32 percent in Europe, Africa and the Middle East.

U.S. new-home construction fell during two of the quarter's three months, including a 14.2 percent drop in December, according to the U.S. Census Bureau.

Caterpillar's North American engine sales fell 23 percent in the fourth quarter, but increased 31 percent in Asia and the Pacific and 31 percent in Europe, Africa and the Middle East.

Robert W. Baird & Company analyst Robert McCarthy noted, however, that 14 cents of Caterpillar's fourth-quarter earnings per share were due to a lower-than-expected tax rate.

"Stronger than expected revenue growth was offset by continued manufacturing efficiency issues," he wrote.

Caterpillar spokesman Mike DeWalt attributed much of the problem to the slowdown in engine sales that curtailed production.

The company plans to spend $2.3 billion this year to add production capacity to deal with order backlogs of construction equipment and other products, a 35 percent increase.

"Our sales have more than doubled in the past five years and we've found ourselves really stretched on capacity, particularly the big stuff," DeWalt said in an interview after the conference call. "We just flat out need more capacity to serve it."

Caterpillar said its full-year profit was $5.37 a share, up 4 percent from 2006. Revenue was $44.96 billion, an 8 percent increase over the previous year.

Analysts had expected income of $5.36 per share on revenue of $44.54 billion.

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AP Business Writer Samantha Bomkamp in New York contributed to this report.

[Associated Press; By DAVID MERCER]

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