Caterpillar Gets Clobbered by Rising Raw Materials (CAT)

 |  About: Caterpillar Inc. (CAT)
by: Tony Sagami

Tony Sagami (Harvest Advisors) submits: Caterpillar’s Q3 results fell far, far short of Wall Street’s lofty expectations. Caterpillar made 94 cents of profit in Q3, well short of analyst forecasts of $1.06.

Caterpillar doesn’t expect business to get any better in Q4 either. CAT now says it will make $1.01 to $1.16, compared with Wall Street forecasts of a $1.20 profit and $3.85 to $4.00 for full-year 2005, below analyst forecasts of $4.15.

The problem is pretty simple: rising raw material costs.

Core operating costs rose $303 million from the third quarter of 2004, primarily due to a $236 million increase in manufacturing costs. Approximately 60% of the manufacturing cost increase was attributable to variable costs due to material, volume-related inefficiencies and increased freight and expediting costs.

Without trying to beat a dead horse, we’ve told you many times that you were going to hear a lot of companies complaining about rising commodity and energy prices. Warnings, like this one from Caterpillar, should not be a surprise to you.

More importantly, there are a lot more warnings like this yet to come.


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