Caterpillar Tumbles After Profit Warning

Sales are lagging as demand for heavy equipment has waned.
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Updated from 12:22 p.m.

Shares of

Caterpillar

(CAT) - Get Report

dropped 12% Friday after the construction equipment maker warned that its fourth-quarter sales and profits would be lower than it expected.

Caterpillar's stock settled down 6 3/4 to 49 3/16.

The company said sales and profits should be slightly better than last quarter, when it made $4.7 billion in revenues and 61 cents a share in profits.

But Wall Street analysts, following the company's guidance, had expected Caterpillar to make 97 cents a share, according to a poll by

First Call/Thomson Financial

. In the comparable quarter last year, the company made 83 cents a year.

Analysts said company officials painted a sunnier picture in a meeting just three weeks ago.

The Peoria, Ill.-based company dominates the worldwide market for agricultural and mining equipment. While the revision signifies a miscalculation by the company's management, analysts said, the shortfall comes from the cyclical nature of demand for the company's products.

Caterpillar said machinery sales have been lower than expected. It plans to forecast the outlook for next year by January.

The Asian and Latin American economic downturns have reduced global demand for commodities like ore and coal, leading to a drop in demand for mining equipment, said Russell Price, analyst for

Olde Discount

, a retail brokerage.

"Conditions are improving in customer markets, but customers aren't ready to buy equipment yet," said Price, whose firm hasn't done underwriting for Caterpillar. He rates the stock a weak buy.

Price said the company had anticipated making shipments for the 797, its new, largest-ever mining truck. Orders fell through for the 360-ton-capacity behemoth, he said.

Analysts had expected Caterpillar to make $2.93 a share this year and $3.75 in 2000. Because demand for equipment is cyclical, analysts will likely also reduce their estimates for next year by about 35 cents a share, said Tobias Levkovitch, analyst for

Salomon Smith Barney

. He rates the stock a buy, and his firm hasn't done equity underwriting for Caterpillar.

While the commodities markets are getting better, the demand for high-dollar, high-profit-margin construction equipment is a slave to high interest rates, which have caused concern about new construction, Levkovitch said.

And "even if you had work to do as a contractor, you couldn't find people to do it," he said. "That's what 4.8% unemployment will do for you."

The stock had jumped almost 40% in the spring, as mutual fund

managers eased out of tech stocks and looked for cyclicals.