Here's hoping the string of talking heads and self-described financial geniuses gracing the airwaves in recent weeks and maintaining that the U.S. housing dilemma won't spread to other sectors will get cut soon. All one needs to do is examine Caterpillar's (NYSE: CAT) results released Friday to understand fully that housing's influenza is resulting in chills and fever in other areas.
For its quarter, Caterpillar did experience a 7.1% growth in revenues to $11.36 billion, compared to $10.61 billion a year ago. But earnings for the quarter slid 21.6%, to $823 million, from $1.05 billion in the June 2006 quarter. The culprits in the company's earnings dip -- in addition to the weak housing market, which reduced construction equipment sales -- included higher-than-expected operating costs and a planned reduction in inventories. In the last-mentioned area, dealer inventories were pared about $800 million. In addition, the company experienced "a $366 million drop in on-highway truck engine sales."
Looking ahead, however, management is sticking with its earlier forecast that full-year sales and revenues will hit about $44 billion (versus $41.5 billion in 2006) and that per-share earnings will climb into a range between $5.30 and $5.80 (versus $5.17). Further out yet, the company's Chairman and CEO Jim Owens said he's "more confident than ever" that Caterpillar will realize its goal of achieving annual profit growth of 15% to 20% to 2010.
For this full year, and despite the difficulties it experienced in the most recent quarter, the company expects international activity to more than carry the load in realizing its expected growth. Specifically, it has forecast that sales outside North America will be up about 24%, more than offsetting an anticipated 12% decline in revenues from North America.
We'll have to await other indications of a spread of housing's contagion to the equipment manufacturing sector. Deere (NYSE: DE), which operates on an October year and also serves the housing sector, will next report its earnings in mid-August. But there's little question that housing's slump continues with no real end in sight. In fact, NVR (NYSE: NVR), a major Virginia-based homebuilder, checked in on Friday with a 52% drop in quarterly profits. That report followed similar negative announcements by such other big builders as Pulte (NYSE: PHM) and D.R. Horton (NYSE: DHI).
Looking specifically at Caterpillar, however, the market's chopping over 4% off the company's share price on Friday probably was understandable, given the lower profits. But at the same time, this is a strong company with solid international businesses, a capable management team, and continued bright prospects. All things considered, I think Caterpillar is still a butterfly.
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Fool contributor David Lee Smith does not own shares in any of the companies mentioned. He welcomes your questions or comments. The Motley Fool has a disclosure policy.
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