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Caterpillar Raises Forecast on Emerging-Market Demand

Caterpillar Inc. CEO Doug Oberhelman
Caterpillar expects the Tenneco collaboration to become a benchmark, says Chief Executive Doug Oberhelman, who succeeded Jim Owens in July. Photographer: Jin Lee/Bloomberg

Caterpillar Inc., the world’s largest maker of construction and mining equipment, raised its full-year earnings forecast and posted third-quarter profit that topped analysts’ estimates. The shares fell after it said tax, pension and research costs will rise in 2011.

Profit for 2010 will be $3.80 to $4 a share, up from a July forecast of $3.15 to $3.85, Peoria, Illinois-based Caterpillar said today in a statement. The average of 23 analysts’ estimates compiled by Bloomberg was for $3.76 a share. Third-quarter net income of $1.22 a share beat the $1.09 average of 21 analysts’ estimates compiled by Bloomberg.

Chief Executive Officer Doug Oberhelman, 57, has announced plans in the past five months to build factories in Brazil and China, where economic growth is outpacing the U.S. Caterpillar is also selling more excavators and haul-trucks to mining companies as commodities prices increase. Oberhelman succeeded Jim Owens on July 1 as CEO.

“It’s truly a story of emerging markets,” Brian Rayle, a Cleveland-based analyst at Northcoast Research who has a “neutral” rating on the shares, said in an interview. “Demand looks like it’s better in this year and 2011.”

Caterpillar fell $1.50 cents, or 1.9 percent, to $78.38 at 11:45 a.m. in New York Stock Exchange composite trading. The shares earlier fell as much as 2.2 percent.

Caterpillar said it expects some “cost headwinds” in 2011 as the tax rate increases. It also forecast higher expenses for pension and retiree medical benefits and research and development related to emissions.

2011 Forecast

“Some investors may have underestimated the impact” of the costs, Joel Levington, a managing director of corporate credit at Brookfield Investment Management Inc. in New York, said in an e-mail.

Third-quarter net income almost doubled to $792 million, or $1.22 a share, from $404 million, or 64 cents, a year earlier. Sales rose 53 percent to $11.1 billion from $7.3 billion.

Revenue in 2010 will be $41 billion to $42 billion, up from a previous outlook of $39 billion to $42 billion. Sales will be “approaching” $50 billion in 2011, the company said.

Sales from Caterpillar’s machines business, which makes excavators, bulldozers, haul trucks and loaders, rose 84 percent to $7.2 billion in the quarter. Engine sales climbed 21 percent to $3.25 billion while financial-product revenue fell 5 percent to $682 million.

Jobs Added

“The numbers are better across the board, in machinery and engines,” Eli Lustgarten, an analyst for Longbow Research in Independence, Ohio, who has a “neutral” rating on the shares, said in an interview. “It’s a solid beat.”

Global employment was 102,336 at the end of the quarter, including about 2,300 full-time workers, following the acquisition of Electro-Motive Diesel. The company added 6,200 full-time employees this year, primarily because of production increases, and about 9,000 part-time, agency and temporary workers.

Caterpillar cut about 19,000 full-time jobs and 18,000 part-time and temporary workers from late 2008 through the end of last year after demand plunged during the recession.

The company today forecast world economic growth in 2010 and next year will be more than 3.5 percent. The U.S. may expand 2.5 percent in this by year and 3 percent next year while developing countries may grow about 7 percent in 2010 and 6.5 percent in 2011, the company said. Growth in China may moderate in 2011 to about 9.5 percent from 10.5 percent, it said.

Caterpillar said it expects the U.S. Federal Reserve Bank will increase liquidity in the fourth quarter and the European Central Bank will hold its current policy through the yearend even though turmoil in government debt markets could result in additional bond purchases.

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