Caterpillar predicts recession, but rises on exports

Caterpillar predicts recession, but rises on exports Caterpillar said strong exports were responsible for record sales and profits in the third quarter ended Sept. 30, but the heavy equipment and engine maker warned that the U.S. economy is on the brink of a recession that is hurting its domestic business.
   The company forecast U.S. Gross Domestic Product will grow about 1.5 percent in 2008, down from the 2 percent growth many economists now expect this year. It said the housing market will continue to decline and that only the coal market shows signs of improvement in the heavy-equipment sector it serves.
   Caterpillar reported an 11 percent drop in North America revenue for the third quarter to $4.98 billion in large measure due to what it called “the collapse” of sales in the trucking industry and construction weakness. Motor carriers have cut back sharply on purchases of new big rigs due to lessening freight demand in a soft economy and the higher purchase and operating cost associated with federally mandated engines that reduce harmful diesel emissions.
   Nonetheless, overseas engine sales helped offset the local decline and pushed the engine division to record operating profit. For the year, the company predicts machinery and engine sales outside North America will be up 25 percent from 2006, or about $4.6 billion — easily counteracting the 12 percent, or $2.5 billion drop, in sales at home.
   Caterpillar is one of the leading engine makers for medium and heavyweight over-the-road trucks.
   The Peoria, Ill.-based manufacturer posted a $925 million increase in total sales to $11.4 billion, the highest it has ever had in a single quarter. The $927 million profit was its best third quarter performance ever.
   “Despite weakness in U.S. markets, our sales and revenues increased 9 percent. 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, chairman and chief executive officer, in a statement.
   Latin America, Africa, the Middle East and Asia should experience good growth in 2008, Europe less so, the company said.
   The company was bullish about the near-term outlook despite choppy economic conditions, saying full year expectations are for sales of $44 billion and profit per share of $5.20 to $5.60 compared to $5.17 in 2006. It projected 5 percent to 10 percent growth in revenue and 5 percent to 15 percent growth in profit next year. Demand is so strong from other parts of the world that some factories are experiencing backlogs filling orders, but Owens said the company expects to meet its goal of more than $50 billion in revenue and compound annual growth since 2005 of 15 percent to 20 percent by 2010.
   Ocean freight rates should stay continue their recovery due to increased trade and some lengthening in transit routes, meaning marine engine demand should remain strong in 2008, Caterpillar said.