Caterpillar investing $1 billion in emerging markets in the next three years

Caterpillar Inc. (CAT) issued a bullish long-term demand forecast for its trademark heavy machinery despite predicting a sharp slowdown in global economic growth next year.
Jim Owens, chairman and chief executive, said falling commodity prices would not deter investment in equipment for the mining and energy industries over the next decade.
"We are in a tough spot," admitted Owens on a conference call, after Caterpillar reported a 6.4% fall in net profits for the third quarter. "But prospects for 2010 and beyond look good, and we need to be ready."
Caterpillar and rivals have seen demand soar over the past five years for heavy equipment serving the mining and construction industries, driven by the commodities boom and infrastructure expansion in emerging markets.
Amid signs of the economic slowdown spreading from the U.S. to western Europe and beyond, Caterpillar declined to issue earnings' guidance for 2009 and said revenues were expected to be flat. The higher raw-material costs that have eroded margins are expected to continue into next year, offset in part by higher prices.
Caterpillar generates 60% of its revenues from outside North America, and the company expects no recovery in the European economy next year, while emerging- market growth is expected to temper.
Global economic growth is seen sliding from 3.8% in 2007 to 2.8% in 2008, and down to 2.5% next year, the slowest since 2002.
Owens expects the U.S. economy to start recovering in the second half of next year, helped by fiscal stimuli. He said the Fed funds rate could fall below 1% by the end of the year.
No Funding Problems
Caterpillar's stock hit a four-year low earlier this month amid concerns about slowing demand and the impact of the credit crunch on its captive finance unit. Shares were recently down 4.6% at $39.03.
CEO Owens said Cat Financial had maintained access to funding during the recent freeze in the commercial paper market, and remained a "competitive advantage" as alternative sources of customer finance became more difficult to access.
While past dues climbed year-on-year and were expected to climb higher in the fourth quarter, Caterpillar said they remained below the peak seen in 2001 and would track average historical rates going forward.
The company continues to face weak demand for its smaller construction equipment in North America, while on-highway truck engines remain depressed.
However, Owens noted the backlog for large equipment used for the mining industry remained positive, pointing to aging equipment that needed to be replaced. "Demand remains good. I just walked through two factories that can't make enough," he said on the call.
On Tuesday, the company said a rolling three-month average for dealer sales rose 1% to end September, compared with a 3% fall the previous month.
Net profits for the quarter to September 30 fell to $868 million, or $1.39 a share, from $927 million, or $1.40 a share, a year earlier. Revenue climbed 13% to $12.98 billion amid higher prices and the weaker dollar. On average, analysts polled by Thomson Reuters were expecting a profit of $1.41 a share on $12.43 billion in revenue. The company reiterated its 2008 forecast for earnings of $6 a share on more than $50 billion in revenue. Analysts' latest estimates were $ 6.04 a share and $50.43 billion, respectively.
-By Doug Cameron, Dow Jones Newswire