Caterpillar Inc, the world's top maker of earth-moving equipment, diesel engines and gas turbines, posted higher quarterly earnings on Friday but missed analysts' expectations, and cut its full-year earnings outlook. Its shares fell more than 5 percent.
The company also sounded an alarm about the outlook for the wider US economy, suggesting the housing downturn was spreading to other parts of the economy and pulling the broader market lower.
Caterpillar warned that several key US industries it serves, including trucking and non-metal mining, were "in recession," and said its machinery sales to non-residential builders were being hit as hard as its sales to the residential building industry, which it said was in "severe recession."
In an interview with Reuters following the release of the earnings, Dave Burritt, the company's chief financial officer, said the pain might spread. Burritt said the US Federal Reserve had to "get the balance just right" to keep the current slowdown from morphing into an outright recession next year. "We've put (the chance of a) recession in probably a 50-50 type range," Burritt said.
Doug Oberhelman, Caterpillar group president with responsibility for engines, told analysts in a conference call that the North American trucking market is going through what may be the worst downturn in more than 50 years.
"We won't know until spring or early summer where freight tonnage is going to land. We're worried about it. Certainly the winter is going to be slow for truck and truck engine production," Oberhelman said.
Caterpillar said third-quarter earnings rose 21 percent as strong sales overseas offset a slump in the US residential construction market, but the results fell short of Wall Street expectations.
The Peoria, Illinois-based company reported a net profit of $927 million, or $1.40 a share, up from $769 million, or $1.14 a share, a year earlier. Analysts, on average, had expected $1.43 a share, according to Reuters Estimates. Revenue rose 9 percent to $11.44 billion, topping an average Wall Street forecast of $10.33 billion.
Caterpillar said a number of factors weighed on results, including higher manufacturing and material costs, which increased core operating costs by $294 million. The company lowered its forecast for full-year earnings to $5.20 to $5.60 per share, from $5.30 to $5.80, and left its revenue forecast unchanged at $44 billion.
Jim Owens, Caterpillar's chief executive, said the record third-quarter results - which came as the company grapples with the effects of the housing slump and a downturn in its on-highway diesel engine business - demonstrated how its huge and growing overseas business stabilises its earnings.
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