Dealers didn't ramp up inventory in early 2013 as they typically do, signaling weaker spring and summer sales for Caterpillar.
The world's largest heavy equipment maker lowered its full-year outlook after first-quarter earnings and sales fell more than expected, largely on falling demand for mining equipment.
But Caterpillar (CAT) said the U.S. housing market remains a bright spot. And it expects to need to ramp up production in China in Q2 to meet demand there.
Caterpillar shares fell initially, but closed nearly 3% higher.
Earnings per share tumbled 45% to $1.31. Analysts surveyed by Thomson Reuters expected $1.40.
Total sales fell 17% to $13.2 billion. Analysts saw $13.72 billion.
Mining equipment led, falling 23%. Construction equipment sales were down 17%. Power Systems' sales were 12% lower.
Caterpillar now sees 2013 EPS of $7 a share, on revenue of $57 billion to $61 billion. It had forecast $7 to $9 a share, on sales of $60 billion to $68 billion.
"Without a doubt it was a challenging first quarter," Mike DeWalt, director of investor relations, told analysts in a conference call.
Caterpillar's results are often viewed as a proxy for the health of the global economy. And that's spotty at best.
"Were in slow recovery mode, but hardly off to the races," William Blair analyst Lawrence De Maria said. "There's still a lot of uncertainty out there.
The company said its inventory fell off by about $500 million in Q1, vs. the $2 billion build-up a year ago.
Its dealers likewise brought inventory on their showroom floors down by about $700 million in the quarter. Last year they added $875 million, in advance of the traditional spring and summer buying season for agricultural and construction equipment.
Caterpillar also restarted its stalled share-repurchase program, which De Maria estimated could prop up earnings per share by 15-20 cents next year.
Agriculture and forestry heavy equipment maker Deere (DE) rose 36 cents to 83.82.
Mining equipment maker Joy Global (JOY) rallied to end up 0.5%.