By James B. Kelleher
CHICAGO (Reuters) - Caterpillar Inc's (CAT) ill-timed bet on the global commodity boom came back to haunt it yet again on Wednesday, forcing the heavy equipment maker to post a lower-than-expected profit.
The company also cut its full-year forecast and offered a first glimpse of 2014 sales that suggested weakness from mining customers would continued to bedevil sales in the new year.
The news sent the Peoria, Illinois-based company's shares down more than 6 percent in afternoon trading on the New York Stock Exchange.
During a conference call to discuss the results, Caterpillar Chairman and Chief Executive Doug Oberhelman said he was confident mining customers would begin ordering again, but acknowledged he did not have any idea when that would happen.
But in recent discussions with mining executives, Oberhelman said they had all made one thing clear: "Any expansion in the near term is dead, it's over, it's not going to happen."
Mining equipment is Caterpillar's most profitable product category and those fat margins were one of the reasons the company made mining equipment a focus of its M&A activity in recent years, buying Bucyrus, a U.S. maker of giant excavators and shovels, for $7.6 billion in 2010, and ERA Mining, a Chinese mining equipment company, for $654 million in 2012.
But the ink was barely dry on those deals before Caterpillar's global mining customers, facing investor backlash over unpopular takeovers, budget overruns and falling metal prices, slashed capital spending, slowed development on some projects and shelved others entirely, and postponed or canceled new equipment orders.
That pullback, which caught Caterpillar by surprise, has forced the company to cut its outlook three times so far this year.
On Wednesday, it forced the company to admit that sales next year are likely to be flat compared with 2013, and could be down as much as 5 percent.
Caterpillar said it had temporarily shut some plants, furloughed thousands of salaried and management employees and reduced its full-time workforce by 3,000 during the third quarter. Over the past year, the company has cut more than 13,000 jobs, about 10 percent of the global total.
It said additional workforce reductions and the consolidation of plants were possible.
Ann Duignan, an analyst at JPMorgan Securities, said the latest cut to the company's 2013 profit forecast suggested that layoffs, furloughs and other cost-reduction strategies were falling short of goals, and that "costs are not coming out as quickly as expected."
Caterpillar, the world's largest maker of earth-moving equipment, reported a third-quarter profit of $946 million, or $1.45 a share, down from $1.7 billion, or $2.54 a share, a year earlier.
Analysts on average expected earnings of $1.66 a share, according to Thomson Reuters I/B/E/S.
Total sales and revenue fell 18 percent to $13.4 billion.
(For a Caterpillar earnings graphic, click on http://link.reuters.com/fyx93v)
The downturn in mining sales is not the company's only resource-related headache. In January, Caterpillar said it was writing off three-quarters of the money it paid for ERA after uncovering "deliberate, multi-year, coordinated accounting misconduct" at a subsidiary of the Chinese firm.
In the minds of many analysts, the ERA debacle symbolized a rash rush by Caterpillar to double down on a notoriously cyclical business.
With no uptick in orders expected, Caterpillar said it now expects a full-year 2013 profit of $5.50 a share on sales of about $55 billion, down from an earlier forecast of $6.50 a share on sales of $56 billion to $58 billion.
It is the third time the company has cut its full-year forecast.
There were few bright spots in Caterpillar's latest report on its worldwide operations. It said it was seeing signs of an improvement in the U.S. construction market, and that dealer deliveries to end users were up year-over-year. That raised the possibility the inventory liquidation that has weighed on its results this year might come to an end in 2014.
But even here there were signs of possible trouble. Profitability from construction sales was poor during the most recent quarter, and Caterpillar warned it could continue to be under pressure because of an, "increasingly competitive pricing environment."
"The third quarter was hideous, the fourth quarter will stink and the guidance for 2014 is very, very subdued," said Brian Langenberg, the principal at Langenberg and Co, a research firm focused on the industrial sector.
Nevertheless, Langenberg thought Wednesday's sell-off represented a buying opportunity, in part, because of the underlying improvement in construction.
In afternoon trading, Caterpillar shares were down
6.2 percent at $83.62, well below the 52-week high of $99.70, reached in February, but above their 52-week low of $79.50, touched in April, when the company issued the first of its profit warnings.
(Reporting by James B. Kelleher; Editing by John Wallace and Andre Grenon)
- Caterpillar Inc