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Top Financial News - Fri, 21 Jan 2000, 1:10pm EST

Caterpillar's Fourth-Quarter Profit Falls 21% as Sales and Prices Decline - By Carol Wolf

Peoria, Illinois, Jan. 21 (Bloomberg) -- Caterpillar Inc., the world's largest maker of construction equipment, said fourth- quarter earnings fell 21 percent and warned that profit in 2000 will be below forecasts as low commodity prices cut sales.

Net income dropped to $239 million, or 67 cents a share, from $301 million, or 83 cents, in the year-earlier quarter. Revenue fell 7.2 percent to $5.02 billion from $5.41 billion. Caterpillar said results this year will be ``slightly higher'' than in 1999, while analysts were expecting stronger growth.

A shift in sales toward less-profitable products, lower prices, and a rise in the dollar that cut profit on overseas sales contributed to the revenue and profit drop. Caterpillar is reducing this year's sales outlook for North American and Latin American engines, and for North American machines. It's the third time in six months that Caterpillar has guided estimates lower. ``Demand is expected to be flattish rather than up for 2000 as the company had previously indicated,'' said Mark Koznarek, an analyst with Midwest Research Inc., which rates Caterpillar ``market perform.''

Caterpillar had been expected to earn $3.20 a share in 2000, according to the average estimate of analysts surveyed by First Call/Thomson Financial. ``Estimates for 2000 will need to be lowered to about $3.00 a share from the current consensus estimate,'' Koznarek said.

Profit Warnings

The Peoria, Illinois-based company's shares fell 1/4 to 46 7/8 in midday trading. Its shares have risen 4.5 percent in the last 12 months, while the Standard & Poor's 500 Index increased about 17 percent.

The profit warning wasn't unexpected. Caterpillar said in November that fourth-quarter profit would be below expectations as slumping machinery sales, particularly in North America, hurt earnings.

Caterpillar in July said that profit in 1999 would be as much as 25 percent less than the year before as mining and farming customers pared orders because of low commodity prices.

The company lowered prices in 1998 to fend off expected competition from farm-equipment makers, such as Deere & Co., which were looking to nab a bigger portion of the construction equipment market because of slowed sales of tractors and combines.

Farm-equipment makers didn't follow suit. Caterpillar then attempted to raise prices by 3 percent in 1999, though the increases didn't stick.

The strong U.S. dollar also hurt profit from overseas, Caterpillar said. Weaker foreign currencies mean overseas sales get translated into fewer U.S. dollars when sent home.

Caterpillar was expected to post fourth-quarter profit of 64 cents, according to the average estimate of analysts surveyed by First Call. Some unofficial figures, known as ``whisper numbers,'' were as high as 66 cents.

-- snooze button (alarmclock_2000@yahoo.com), January 21, 2000