Caterpillar Profit Rises, But Falls Short of Forecasts

Caterpillar said fourth-quarter profits rose 4%, as higher operating costs partially offset increased sales of its engines and other machinery.

Net income at the Peoria, Ill.-based heavy machinery maker rose to $882 million, or $1.32 a share, from earnings of $846 million, or $1.20 a share, a year ago.

The results were short of estimates from analysts surveyed by Thomson Financial, which projected fourth-quarter earnings of $1.34 a share.

Sales rose 14% to $11 billion - lifted by a 13% jump in machinery sales and a 17% rise in engines sales - from $9.66 bilion a year ago. Excluding revenue from its financial products division, sales from machinery and engines climbed to $10.33 bilion in the latest period, up from $9.04 billion last year.

For 2007, Caterpillar expects sales will be flat to up 5%, or in the range of $41.5 billion to $43.6 billion, while earnings climb to between $5.20 and $5.70 a share.

Analysts had expected the company to post 2007 revenue of $41.1 billion and earnings of $5.54, according to a consensus estimate compiled by Thomson Financial.

"I'm anticipating great things for Caterpillar in 2007," said Chairman and Chief Executive Jim Owens. "Despite a sharp decline in two key North American industries -- on-highway truck engines and U.S. housing -- and an expected reduction in dealer inventories, we are projecting another record year in 2007," he said.

In order to achieve this goal, the company will have to focus on cost management, he said.

Caterpillar has seen pressure on margins as demand slows for its earth-moving equipment due to the anemic U.S. homebuilding market and rising raw material prices. Earlier this year, rising raw material prices added $225 million to its manufacturing costs in the third quarter, according to David Bleustein, an analyst at UBS Investment Research.

Beyond this year, Caterpillar expects sales in excess of $50 billion and compound annual growth in per-share earnings of 15% to 20% from 2005 to 2010.