Caterpillar cuts forecast after sales fall in 'painful year'

Bloomberg NewsOctober 23, 2013 

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Caterpillar construction equipment sits on the lot of a dealership Wednesday in Elmhurst, Ill. Caterpillar Inc. reported lower-than-expected quarterly profit and cut its forecast for the year. A decline in sales of mining equipment was the largest contributor to the poor report.

SCOTT OLSON — GETTY

— Caterpillar, the biggest maker of construction and mining equipment, cut its 2013 sales and profit forecast and said revenue will be little changed next year after a slump in orders from commodity producers.

Earnings will fall to about $5.50 a share on sales of $55 billion this year, the Peoria, Ill.-based company said Wednesday in a statement. In July, it forecast per-share profit of about $6.50 on sales of $56 billion to $58 billion.

Revenue in 2014 will be in a range of 5 percent lower to 5 percent higher than this year because of “very low” mining-machinery orders and uncertainties over global economic growth, it said. The shares fell 6.1 percent, the most in two years.

Caterpillar said demand from the mining industry has been difficult to forecast this year after customers decided to focus on existing projects instead of new mines. BHP Billion and Rio Tinto Group are among mining companies that have cut billions of dollars in capital expenditures this year. Caterpillar said it fired more than 13,000 workers in the past year as it adjusted output. The company employs several thousand workers in North Carolina at a half-dozen locations, including Clayton, Sanford and Winston-Salem.

“It has been a painful year and has required wide-ranging and substantial actions across the company,” Chairman and Chief Executive Officer Doug Oberhelman said in the statement. “There are encouraging signs, but there is also a good deal of uncertainty worldwide as we look ahead to 2014.”

Caterpillar fell to $83.76 at the close in New York, the biggest decline since September 2011.

“The implied fourth-quarter guidance is certainly weaker than expected, and the flat outlook for next year was expected, but now it’s on a lower base, which is not exactly encouraging,” Larry De Maria, a New York-based analyst for William Blair & Co., said in a telephone interview. “The stock ran up into the report, but now it’s going to settle back down on concerns about the outlook.”

Third-quarter net income was also lower than expected, dropping to $1.45 a share from $2.54 a year earlier. That missed the $1.67 average of 20 estimates compiled by Bloomberg. Sales in the period declined to $13.4 billion from $16.4 billion. The average of 12 estimates had been $14.5 billion.

Inventory continued to decline in the third quarter, mainly in mining equipment, and was about $500 million less than in the preceding quarter.

Mining industry focus

Caterpillar has focused on the mining industry since Oberhelman became chairman and CEO in 2010. The company bought Bucyrus International in 2011 and ERA Mining Machinery in China last year to expand its mining-product range.

Analysts on average expect capital spending plans for major mining companies to fall 16 percent in 2013 and as much as 12 percent in the next two years, Bloomberg Industries analyst Karen Ubelhart said Oct. 15 in a report.

Miners “need to see commodity pricing and the supply and demand environment firm up for a sustained period before they contemplate a major expansion,” Matt Arnold, a St. Louis-based analyst for Edward Jones & Co., said Oct. 18. Arnold recommends holding Caterpillar shares.

While mining orders are down, demand for construction machinery is improving. Next year, Caterpillar’s construction industries unit’s sales will rise, while revenue in the power-systems business will be little changed, the company said.

The company reported for the 10th consecutive month that rolling global three-month retail machine sales fell, led by declines in the Asia-Pacific region.

Resource industries and power systems each accounted for 32 percent of Caterpillar’s equipment sales last year, while construction made up 29 percent.

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