Cat: Mining downturn continues to plague sales, profits
- Details
- Published on Wednesday, 23 October 2013 16:58
- Written by Paul Gordon
Sales within the mining industry, a bright spot for Caterpillar Inc. just a few years ago, were down again in the third quarter and proved to be a drag on overall sales and profits during the period, the company announced Wednesday.
Further, it resulted in Caterpillar downgrading its outlook for the full year and issing a cautious preliminary outlook for next year, a move noticed by a nervous investment community that responded quickly in trading on the New York Stock Exchange.
Caterpillar reported a third-quarter profit of $946 million, or $1.45 a share, a decline of 43 percent from the third quarter of 2012 when the profit was $1699 billion, or $2.54 a share.
Sales and revenues were $13.423 billion in the third quarter this year, an 18 percent decline from the sales and revenues of $16.445 billion a year earlier.
For the first nine months of the year sales and revenues were $41.254 billion, compared with $49.8 billion through three quarters in 2012. The profit was $2.786 billion, or $4.21 a share, through September this year, compared with $4.984 billion, or $7.44 a share, a year ago.
Caterpillar said it now expects sales and revenues to be about $55 billion for the year with profit of $5.50 a share. The previous outlook called for sales and revenues for the year to be $56 to $58 billion and profit to be about $6.50 a share.
If that holds the expected $11 billion drop in sales and revenues from 2012 would represent a 17 percent decline, said Chairman Doug Oberhelman. Noting that "this year has proven to be difficult," Oberhelman said much of the blame is in the Resource Industries segment, which is principally mining. "We expect Resource Industries to be down close to 40 percent for the full year and Power Systems' and Construction Industries' sales to each be down about 5 percent," he said.
Oberhelman said demand for mining equipment has been difficult to predict. When the year began the company said mining production was starting to pick up for many commodities, so it expected demand for equipment to start picking up in the second half of the year. "Unfortunately, order rates have not picked up much despite continuing strong commodity production. That has caused us to ratchet down our sales and revenues outlook as we have moved through 2013," he said.
During a meeting with reporters, Group President Brad Halverson said a reduction in inventory that has accompanied the downturn in demand is helpful to the company's cash position, but that it still comes with a cost. Some of that has been in employee cutbacks, across-the-board temporary layoffs and rolling plant shutdowns during the past year. To date worldwide employment has been reduced more than 13,000 workers, to about 137,000. Most of the reductions have been in overseas employment, the company said.
Cost reductions will continue in the fourth quarter but the company declined to provide details.
Year-to-date, the company said, it has lowered costs by about $700 million and reduced capital expenditures by about $400 million. Under the circumstances, Halverson said, "Our employees can be proud of what we are delivering operationally. Safety and quality continue to improve. We are proud of where we are at this point. The team has sacrificed to meet our commitments."
Many segments continue to do well, Halverson said, including Caterpillar Financial Products and the company's power systems segment. He added the construction industry just needs some confidence, domestically and abroad, and it is poised to take off.
"If we get some stability, North America has huge pent-up demand. I think we would see infrastructure construction really pick up. Of course, we're going to wait to see it pick up before we call it returning," Halverson said.
That as well as uncertainty in U.S. fiscal policies and global economics is why the company is being cautious in its preliminary outlook for 2014, he said. That outlook calls for sales and revenues to be basically flat with this year.
Wall Street took note of that caution, as well as the fact Caterpillar's profit in the third quarter was well below the $1.67 a share expected by a consensus of analysts who cover Caterpillar. It was the fourth consecutive quarter actual earnings missed analysts' predictions.
Investors returned the caution. Caterpillar stock fell $5.41 a share, or more than 6 percent, to $83.76 in trading Wednesday on the New York Stock Exchange. Nearly 21 million shares, or about four times the daily average volume, were traded.
Noting Caterpillar expects growth in some segments, including construction industries, Oberhelman said, "There are encouraging signs, but there is also a good deal of uncertainty worldwide as we look ahead to 2014, and our preliminary outlook reflects that uncertainty. Despite prospects for improved economic growth and continued strong mine production around the world, we won't be increasing our expectations for Resource Industries until mining orders improve. We can't change the economy or industry demand, but we've taken many actions to align our costs with the environment we're in currently.
"While we've done much already, we're not finished and expect to take deeper actions to improve our cost structure and balance sheet. We're not seeing bright spots in mining yet, but the turnaround will happen at some point, and when it does, we'll be ready to respond," Oberhelman added.
Some items of note in Caterpillar's third-quarter report include:
Sales and revenues were down 18 percent total and also declined in all geographic regions where the company does business. The worst decline, 32 percent, was in the Asia region.
The least decline was in Latin America at 12 percent; sales were up in all segments except mining. It was down 42 percent in that segment.
Sales were down 7 percent in construction industries, 42 percent in resource industries and 7 percent in power systems.
Cat Financial Products reported a 4 percent increase in revenues and a 15 percent improvement in profit.
Dealer machine and engine inventories decreased in the third quarter of 2013 by about $800 million, which compares with an increase of about $800 million in the third quarter of 2012. Most of the change in both periods was related to mining.
To read the company's entire Third Quarter report visit www.caterpillar.com.
