Caterpillar reports strong profits but mining sector takes a loss

January 31, 2014

Caterpillar Inc posted a stronger-than-expected quarterly profit but said it it expects a 10 percent decline in sales of mining equipment this year.

"The bad news is that orders for new (mining equipment) remain pretty low. But we don't think that can go on indefinitely, and we remain positive on our long-term view of mining," Mike DeWalt, Caterpillar's vice president of strategic services, said in a conference call.

Reuters reported that the profit was the result of cost cuts and an uptick in demand for its building equipment and that the company expects that to offset the weak sales to the mining industry.

"We expected there would be a decline in mining sales in 2013, and it turned out to be worse than we anticipated," Doug Oberhelman, the chairman and chief executive officer, said in a statement.

"As a result, we took substantial actions to reduce costs which helped mitigate the impact on profit."

Caterpillar, which cut nearly 10,000 jobs globally last year, said it was beginning to see "some signs of improvement in the world economy, which should be positive for sales" down the road.

It expects construction-equipment sales, which jumped 20 percent in the most recent quarter, to rise another 5 percent in the coming year.

Caterpillar's cautious optimism extended to the emerging markets, a source of investors' concern in recent weeks. The company forecast economic growth picking up modestly in the world's developing economies in 2014.

The mining sector had been one of the company's most profitable in recent years and Caterpillar doubled down on the business through acquisitions. But over the past year and a half, mining customers faced investor backlash over unpopular takeovers, budget overruns and falling metal prices, and postponed or canceled new equipment orders.

Oberhelman said that Caterpillar expects those headwinds to continue in 2014, with mining equipment sales declining another 10 percent. He said that the company would "take additional actions" during the year to cut costs. He characterized the moves as "tough decisions necessary to better position us down the road when economic conditions improve and our sales rebound."



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