Caterpillar slips from Dow leader to laggard on economy

July 24 (Bloomberg) -- Caterpillar Inc., the second-best performer in the Dow Jones Industrial Average earlier this year, has become one of the index’s biggest losers as slowing global economic growth prompts analysts to cut profit estimates.

While Caterpillar’s 26 percent rise in the first two months of the year made it the largest gainer in the 30-company index after Bank of America Corp., the Peoria, Illinois-based manufacturer’s 10 percent drop this year puts it fourth from the bottom. At least nine analysts have cut their 2012 profit estimates in the past four weeks, reducing the average projection for Caterpillar’s earnings to increase 29 percent, from 31 percent previously.

Caterpillar, the world’s largest maker of construction and mining equipment, had nine straight quarters of earnings growth as it rode a wave of investment by mining companies. In the current quarter, Caterpillar’s strategy of expanding outside the U.S. is coming under pressure as the rate of China’s economic expansion decreases and Europe’s debt crisis drags on.

“The real question is: what does the forecast look like?” Stephen Volkmann, a New York-based analyst for Jefferies Group Inc. who reduced his rating on Caterpillar to hold from buy last week, said in a July 20 phone interview. “The concern is that the growth trajectory has slowed.”

Retail Sales

In April, the company forecast 2012 profit of about $9.50 a share and sales advancing as much as 20 percent to $72 billion, in what would be a third year of gains.

Caterpillar’s global retail machine sales rose 11 percent in the three months through June, according to a filing today, matching the gain for March through May. North America led with a 24 percent increase, compared with 31 percent reported previously. Asia-Pacific sales expanded 16 percent, up from 5 percent. Latin America was down 3 percent.

“The data demonstrates that China and Brazil may be bottoming,” Larry De Maria, an analyst at William Blair & Co. in New York, said in a note.

Caterpillar, considered a U.S. economic bellwether, is scheduled to release earnings before the start of trading tomorrow. The company is expected to report second-quarter profit increased 33 percent to $2.28 a share, according to the average of 20 estimates. Analysts project, on average, that sales rose 19 percent to $17 billion.

There have been indications that demand for the company’s signature yellow machines was cooling in some regions. Chief Executive Officer Doug Oberhelman told investors in April when Caterpillar reported first-quarter earnings that sales of construction equipment in China and Brazil were down.

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