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Caterpillar 3Q profit slides
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October 16, 1998: 11:15 a.m. ET
Margins shrink on higher revenue; outlook for 1999 remains bleak
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NEW YORK (CNNfn) - Caterpillar Inc.'s third-quarter earnings slid 13 percent, falling below Wall Street's expectations as profit margins shrank despite higher revenue, the world's leading maker of earth-moving equipment said Friday.
In addition, the Peoria, Ill.-based company said stagnant demand at home and further weakness in Asia will hold 1999 revenue near current-year levels. To enhance per-share earnings, the company plans to buy back about 38 million of its shares outstanding.
Shares of Caterpillar (CAT) fell 1-5/8 to 46-3/8 on the New York Stock Exchange.
For the latest period, net income totaled $336 million, or 92 cents a share, trailing analysts' consensus estimate of $1 a share.
A year earlier, the company earned $385 million, or $1.03 a share.
But while revenue increased 12 percent to $5.17 billion, profit margins fell to 23.6 percent of sales from 25.2 percent a year earlier.
Caterpillar said its outlook for 1998 worldwide sales and revenue remains unchanged from that issued with Caterpillar's third-quarter 1997 results, which called for sales and revenue (excluding Perkins Engines, which was acquired during the first quarter) to slightly surpass 1997's record levels.
Profits in 1997 totaled $1.67 billion, or $4.37 a share on a diluted basis.
Sales in the latest period were helped by the company's first-quarter acquisition of Perkins Engines. But spending on growth initiatives, such as the Perkins acquisition, is expected to cut about 10 percent from 1998 profit. The spending will be less dilutive in 1999 and should add to earnings in the year 2000, the company said.
Despite the impact of the growth initiatives, Caterpillar's outlook for profit in 1998 remains unchanged from that issued with Caterpillar's fourth-quarter 1997 results, and is expected to be near 1997's record. Profit per share has been and will continue to be favorably affected by share repurchases. Cash flow from operations and Caterpillar's financial position are expected to remain strong.
Looking ahead, the current turmoil in worldwide financial markets makes it very difficult to forecast sales for 1999, Caterpillar said.
In total, industry demand for machines and engines is likely to be down slightly due to weakness in Asia/Pacific and Latin American regions, weaker North American demand for on-highway trucks and the worldwide impact of low commodity prices. In this challenging environment, Caterpillar's preliminary 1999 outlook is for company sales and revenue to be near 1998 record levels, the company said.
Caterpillar also said Friday that it will buy back enough of its common stock within the next three to five years to reduce the total outstanding to 320 million shares from 358.7 million as of Sept. 30.
A separate 10-percent share repurchase program initiated in 1995 was completed in the third quarter, Caterpillar said.
-- from staff and wire reports
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Caterpillar
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