January 27, 2010 / 3:47 PM / 8 years ago

UPDATE 5-Caterpillar forecast disappoints; shares fall

5 Min Read

* 2010 profit forecast is below Street view

* Q4 adjusted EPS 41 cents; Street view 28 cents

* Sees signs of rebound around the world

* Shares down 7.5 percent, off earlier lows (Adds prospects for competitors, U.S. report on new home sales, updates share fall)

By James B. Kelleher

CHICAGO, Jan 27 (Reuters) - Caterpillar Inc (CAT.N), the world's largest maker of construction and mining equipment, offered an unexpectedly guarded view of the coming year on Wednesday, sending its stock down as much as 8.6 percent and pulling down the broad market.

The cautious outlook from the bellwether company came as Caterpillar posted stronger-than-expected quarterly earnings and said it was seeing encouraging signs that economies around the world were rebounding from a recession that hammered its sales over the past year.

But the company, a component of the Dow Jones industrial average, also forecast 2010 earnings below the average Wall Street estimate. It said it now expects a profit of $2.50 a share on sales of $35.6 billion to $40.5 billion as the rebound from the recent global downturn favors some of its markets and products over others.

That was below the $2.71 a share profit analysts expected, according to Thomson Reuters I/B/E/S -- and well below the $3 a share "whisper number" that Eli Lustgarten, an analyst at Longbow Securities, said was circulating among some investors.

"So they're offering a little more cautious outlook on profitability than some of the more optimistic analysts were hoping for," Lustgarten said.

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For a graph on Caterpillar's earnings, click on:

link.reuters.com/kuf26h

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Caterpillar said it expects the world economy to grow more than 3 percent in 2010, led by developing economies like China, which it said would grow more than 10 percent.

It warned that the United States, the world's largest economy, would grow just 3.5 percent, well below levels seen in past recoveries.

It expects a continued decline in nonresidential building construction, and said delays in passing a highway bill "likely will cause highway contractors to remain cautious about purchasing equipment."

That is bad news for Caterpillar and other makers of construction equipment, including Terex Corp (TEX.N), Deere & Co (DE.N), Komatsu Ltd (6301.T) and Volvo (VOLVb.ST). The companies are already grappling with a precipitous drop in sales to residential builders because of the collapse of real estate prices in North America and Europe.

And that picture got worse on Wednesday, at least in the United States. Government figures showed an unexpected fall in December sales of newly built single-family homes as the bounce from a tax credit fizzled.

Fourth Quarter

Caterpillar's disappointing forecast came as the company reported a fourth-quarter net profit of $232 million, or 36 cents a share, down from $661 million, or $1.08 a share, a year earlier.

Sales fell 39 percent to $7.9 billion.

Stripping out costs associated with the company's restructuring, which involved the elimination of nearly 25,000 jobs worldwide, Caterpillar earned 41 cents a share.

On that basis, analysts, on average, expected the Peoria, Ilinois-based company to report 28 cents a share, on sales of $8.11 billion, according to Thomson Reuters I/B/E/S.

Caterpillar, which has described the downturn in its business in 2009 as the worst since the Great Depression, said it was seeing encouraging signs of a rebound in interest for many of its products.

"We have seen a marked increase in demand for mining equipment -- a result of continued strong commodity prices and growing confidence in economic recovery," Jim Owens, the company's chairman and chief executive, said in a statement.

Owens said the company had also seen an increase in sales of aftermarket service parts, which he said "is usually an early indicator of growing demand for machines and engines."

But the company said that many of the factors that helped support earnings in 2009 would not be there in 2010, including low income taxes and accounting benefits related to inventory reductions.

In addition, it warned that sales of its higher margin products, including turbines and large reciprocating engines, would fall in 2010. It said the "impact of improving demand for mining equipment is positive, but not enough to offset the significant negative factors."

In afternoon trading on the New York Stock Exchange, Caterpillar shares were down 7.4 percent at $51.71. They traded as low as $51.03 earlier in the session. (Reporting by James B. Kelleher; editing by Dave Zimmerman and John Wallace)

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