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As the worm turns, company reduces forecast for the year



Published: Sat, October 21, 2006 @ 12:00 a.m.



PEORIA, Ill. (AP) -- Caterpillar Inc. called an anticipated sales slowdown in 2007 a pause, not the end of a sales surge that has doubled revenues since 2002. Wall Street wasn't so sure and sent the heavy equipment maker's shares tumbling Friday.

Some analysts said the 14 percent slide in stock price was a market overreaction to a gloomy forecast that overshadowed record third-quarter profits and revenue for the heavy equipment maker.

"Whenever you have a disappointment you can expect a 10 [percent] to 20 percent decline that day. I don't think it will stay down," said Stephen Coleman, chief investment officer for St. Louis-based Daedalus Capital.

Caterpillar reported Friday that third-quarter profit rose 15 percent, but the results were below analysts' expectations. The company also sharply reduced its forecast for the full year and said it expects a slowdown in 2007.

The company lowered its full-year earnings forecast, citing high operating costs and lower-than-expected sales volumes.

Caterpillar also cautioned that the weak residential housing market in the United States and a drop in sales of truck engines will restrain revenue growth next year. The company predicted that new diesel engine emissions regulations that take effect next year will trim sales because buyers have stocked up ahead of the deadline.

On the heels of the report, Caterpillar shares sank 9.88, or more than 14 percent, to 59.14 in extremely trading on the New York Stock Exchange. More than 59 million shares were bought and sold, or about eight times its average daily volume.

With 656 million shares outstanding, stockholders lost more than 6 billion in share value because of the price dive.

Caterpillar officials predicted the company's sales will rebound after next year, saying energy exploration, mining and infrastructure improvements remain strong worldwide and will continue to push demand for its trademark yellow earth-moving machines.

"We see this as simply a pause. ... There's a lot of optimism for Caterpillar long term," said David Burritt, the company's chief financial officer.

For the third quarter, net income grew to 769 million, or 1.14 per share, from 667 million, or 94 cents per share, a year earlier. The latest period included about 80 million in legal expenses, most to settle a dispute with truck and engine maker Navistar International Corp. over licensing and supply agreements.

Sales jumped 17 percent to 10.52 billion from 8.98 billion a year earlier, boosted by higher prices and increased volumes for both machines and engines. Favorable foreign currency exchange boosted sales by 97 million.

Analysts polled by Thomson Financial forecast earnings, excluding one-time items, of 1.35 per share and sales of 9.87 billion.




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