Caterpillar Inc.'s third-quarter net income fell 6.4% as higher costs for steel, oil and other commodities offset sales gains.Workers used Caterpillar machinery to excavate a trench for a new water line in this 2006 file photo in Sandy, Utah.
Although sales in developing countries remained strong, the company's outlook for the global economy in the short term turned increasingly gloomy.
The Peoria, Ill., maker of heavy equipment said net fell to $868 million, or $1.39 a share, for the quarter ended Sept. 30, from $927 million, or $1.40 a share, a year-ago. Revenue climbed 13% to $12.98 billion aided by higher prices and a weaker dollar.
On average, analysts polled by Thomson Reuters were expecting a profit of $1.41 a share on $12.43 billion in revenue. Its shares declined about 5%, or $2.07, to $38.83 in 4 p.m. trading on the New York Stock Exchange.
Caterpillar said it expects global economic growth to drop a percentage point in 2008 to 2.8% from 2007, then fall farther in 2009 to less than 2.5%. Meanwhile, the U.S. and Canada will grow less than 1% in 2009, the company projected.
"Next year, no doubt, will be a challenge," Caterpillar Chief Executive Officer Jim Owens told investors in a conference call Tuesday.
As the downturn in the U.S. housing market and wider economy has rippled around the world, Caterpillar has increasingly relied on sales in developing countries such as China, Brazil and Russia to boost sales and earnings.
With heavy-machinery sales declining in Europe and North America and gains expected to temper in developing economies, Caterpillar's profit prospects look more uncertain than they have in years. In an unusual step, the company delayed forecasting its 2009 profit until January citing "economic turmoil" that forced a change in its timetable.
Caterpillar did estimate that next year's sales of its earth-moving machines and engines that power ships, tractors, electricity generators and oil-drill rigs will be about even with 2008, at about $50 billion.
In recent years, growth outside the U.S. has helped Caterpillar offset weakening demand in developed countries. In Europe, Africa and the Middle East, sales of engines used to make electricity jumped 20% in the third quarter, with demand in Africa and the Middle East offsetting drops in Europe.
Sales of engines that help generate power in petroleum-production operations rose 44% in Latin America. Strong demand for gas generators for data and telecommunications centers in China helped drive a 32% boost in engine sales in the Asian-Pacific region.
But in the developing world, "problems are emerging," Caterpillar CEO Mr. Owens said. Some major infrastructure projects probably will be delayed amid financing troubles, he said.
Mr. Owens said that as long as oil prices stay above $50 a barrel, he still expects investment in petroleum production to continue, requiring more of Caterpillar's giant engines, pipe-laying machines and other equipment. If prices for many metals remain above levels they hit in early 2005, mining companies would still spend to replace equipment, he said. The company has about three years' worth of orders for mining trucks that can handle payloads of 100 tons or greater, he said.
In late 2009 or 2010, Mr. Owens said he expects economic growth in the U.S. to begin rising again. Meanwhile, the need for infrastructure development in emerging economies will grow.
