Published: October 19 2007 20:54 | Last updated: October 19 2007 20:54
Caterpillar, the US-based maker of construction equipment and heavy-duty engines, issued a bleak prognosis for the US economy on Friday, saying that it was “near to, or even in, recession”.
The warning, which included a downward revision of 2007 earnings estimates and a sober outlook for the US market in 2008, helped propel a widespread slide on Wall Street on Friday. Caterpillar shares were 6 per cent lower at $73.03 by late afternoon.
While Caterpillar’s net third-quarter profit climbed to a record $927m, or $1.40 a share, the improvement was entirely due to a strong performance in other parts of the world. Earnings in the third quarter of 2006 were $769m, or $1.14 a share. Revenues climbed almost 9 per cent to $11.4bn.
“We continue to see remarkable growth outside of the United States with particular strength in key industries like mining, oil and gas, electric power and marine engines,” said Jim Owens, chief executive.
But North American revenues fell by 11 per cent in the third quarter to $5bn, due to construction industry weakness, as well as a steep fall in sales of heavy trucks, many of which are fitted with Caterpillar engines.
Mr Owens said that the Federal Reserve would need to make further cuts in interest rates “to move economic growth back to nearer the economy's potential”.
Caterpillar’s estimated 2007 earnings are now in a range of $5.20-$5.60 per share, down from $5.30-$5.80. Earnings are expected to rise by 5-15 per cent next year to a fifth consecutive record. The 2007 sales projection is unchanged at about $44bn, up 6 per cent from last year, with a 5-10 per cent increase expected in 2008.
Caterpillar expects machinery and engine sales in its home market to decline by 12 per cent this year, offset by growth of 25 per cent abroad.
North America’s share of total sales is set to drop from almost 50 per cent in 2006 to 40 per cent this year.
Overall North American heavy-truck sales have tumbled 30-45 per cent each month since March, compared with a year earlier, due to the faltering economy and heavy orders in previous years in advance of tighter emission controls.
Standard & Poor’s said in a report this month that the weakening economy, especially housing and construction, “add to our concern that a rebound [in truck orders] will not begin in earnest until 2008 and perhaps the latter half of the year”.
Copyright The Financial Times Limited 2007
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