Caterpillar cuts forecast for third straight quarter

July 24, 2013

For the third consecutive quarter, Caterpillar cut its earnings forecast and posted profits that trailed analysts’ estimates as mining-equipment sales declined on slower commodity demand, Bloomberg reported.

The world’s largest manufacturer of mining and construction machinery saw second-quarter net income drop to $1.45 a share from $2.54 a year earlier, the company said in a statement. That missed the $1.68 average of 19 estimates compiled by Bloomberg. Sales declined to $14.6 billion from $17.4 billion, less than the $14.9 billion average of 16 estimates.

The company forecast 2013 earnings of about $6.50 a share on sales of $56 billion to $58 billion. In April, it predicted full-year profit of about $7 a share on revenue of $57 billion to $61 billion. Analysts projected profit of $6.81 a share on sales of $58.6 billion.

However, commodity prices have fallen and the slowdown in China has slowed the commodities supercycle leading to slower sales for Caterpillar and other mining equipment manufactures.

Swedish mining equipment manufacturers Atlas Copco and Sandvick each announced in July that the mining slow down has hit them hard.
Atlas Copco announced that it would be cutting its overall workforce as it faces weaker demand for its drill rigs and loaders from the global mining sector (ME, July 19).

Robust activity in services and industrial equipment stemmed a fall in group profit and orders but the company forecast that demand for mining gear would slip further in the near term, Reuters reported.

Sandvik reported that its orders for mining machines fell by 35 percent this year.

Caterpillar has expanded in mining through acquisitions over the past two years, making resource industries the company’s largest unit by revenue. Now it’s battling for customers as commodity demand slows. Mining capital spending will drop 11 percent this year and 14 percent next year, based on estimates from the 40 largest global mining companies, according to Volkmann.

Caterpillar machinery retail sales reported by dealers fell 8 percent globally in the quarter. The Asia-Pacific region posted a 21 percent decline.
Caterpillar’s sales to customers in the natural resources industries grew to 32 percent of total equipment sales in 2012.

Under Chairman and Chief Executive Officer Doug Oberhelman, the company bought mining equipment makers Bucyrus International Inc. for $8.8 billion in 2011 and ERA Mining Machinery Ltd. in China for about HK$5 billion ($640 million) last year. Caterpillar took a $580 million goodwill writedown in the fourth quarter after discovering what it called accounting “misconduct” at part of ERA.

Caterpillar said in April it planned to buy back $1 billion of shares.



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