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Caterpillar warning hurts
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November 19, 1999: 6:45 p.m. ET
Stock price drops 11% after company says 4Q profit will miss estimates
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NEW YORK (CNNfn) - Shares of Dow component Caterpillar Inc. closed down 11 percent Friday after the heavy-equipment manufacturer warned its fourth-quarter sales and earnings will be significantly lower than expected.
The company cited weak machine sales, particularly in North America, and lower prices in that key market. Its statement marked the third time this year it has warned of lower-than-expected results, the second time for the fourth quarter alone.
The company's stock closed down 6 9/16 at 49 3/8 on the New York Stock Exchange.
Weak N. American sales, prices
Caterpillar (CAT) said the quarter's sales and profit will be only slightly above its third-quarter results, when it earned $219 million, or 61 cents a diluted share.
Analysts surveyed by First Call Corp. had expected fourth-quarter earnings of 97 cents a share, which was lowered from $1.10 a share after the company issued a warning for its fourth quarter Oct. 15, along with its third-quarter results.
In the fourth quarter of 1998, Caterpillar posted earnings of 83 cents a share.
Analysts not optimistic short-term
One analyst, Jim McCann of Merrill Lynch & Co., downgraded the stock's intermediate-term rating to "neutral" from "accumulate," although he kept it as a long-term "buy." He also reduced his earnings estimate for the fourth quarter to 65 cents a share from 93 cents, and his 2000 earnings estimate to $3.25 a share from $3.75 to $4 a share.
Still, he believes that while investors will shun the stock in the coming months due to recent disappointments, he expects improvement in the company's performance next year.
"I think activity in their global markets is beginning to look more positive, and the highway spending we'll see in the U.S. is also positive for 2000," he said.
But the average recommendation on the stock is just a bit above "neutral," according to First Call, and has been falling since March. A more bearish analyst said he thinks improvement will be difficult.
"Let's face it, North American construction is at a peak," said Steve Volkmann, analyst at Morgan Stanley Dean Witter. "That doesn't mean we're going to have a disaster, it just means the upside is limited."
Volkmann scoffed at those who suggested the move to admit China to the World Trade Organization announced this week will open significant opportunities for Caterpillar in the near term.
"I don't argue that Caterpillar should do better with China in the WTO than with it not there, but people have had a lot trouble making money in China," he said. "It becomes a relatively small issue."
The company issued a warning March 12 about the first-quarter results, and it missed expectations for second-quarter earnings.
Still, the earnings guidance Friday surprised even critics like Volkmann.
"I'm not surprised the number is lower, but I'm surprised by how much lower it is," he said.
The Caterpillar statement said it believes results will improve next year, though.
"The company is still developing its business plans for 2000 and will issue a complete outlook statement in mid January," the warning statement said. "However, the preliminary outlook for 2000 calls for revenue and profit to be higher than 1999 levels."
Analysts already had expected a rebound next year, projecting earnings of $3.75 a share compared to the $2.93 they had expected for 1999, but which the company now says it won't reach.
The big drop in Caterpillar was responsible for much of the Dow's troubles Friday. Its stock makes about 2.5 percent of the index.
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Caterpillar Inc.
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