A record 3rd quarter for Cat
- Details
- Published on Monday, 22 October 2012 12:54
- Written by Paul Gordon
Company had its best third quarter ever but becomes more cautious in outlook
Caterpillar Inc. rode strong growth in mining and other resource industries and modest recovery in U.S. construction to its best third quarter in company history.
The company had a profit of $1.7 billion, or $2.54 a share, on sales and revenues of $16.45 billion during the quarter, all record numbers.
But continued uncertainty in the global economy caused Caterpillar to lower its expectations for the rest of the year.
It was another record quarter in sales and profits for Caterpillar Inc. in the July-September period, but the company turned more cautious in its forecast for the remainder of 2012.
It remained cautious in its preliminary outlook for 2013 as company officials said global economic recovery has not occurred as quickly as originally expected.
Caterpillar reported Monday in had $16.45 billion in third-quarter sales and revenues, up 5 percent from a year earlier and an all-time third quarter high, while its profit in the period was a third-quarter record of $1.7 billion, or $2.54 a share. That was 49 percent higher than a year earlier, but included a pre-tax gain of $273 million from the previously announced sale of a majority interest in Caterpillar's third-party logistics business.
For the first nine months of the year the company had sales and revenues of $49.8 billion, up from $42.8 billion through the first three quarters of 2011. Profit was $4.98 billion, or $7.44 a share, through three quarters of 2012, compared with $3.38 billion, or $5.08 a share, last year.
Caterpillar, however, lowered its outlook for the rest of 2012, saying it now expects sales and revenues to be about $66 billion, with a profit in the $9 to $9.25 a share range. Previously the company forecast sales and revenues to be in the range of $68 billion to $70 billion, with a profit of about $9.60 a share.
Those would still be record numbers, the company said.
It's preliminary outlook for 2013 calls for sales and revenues to be flat with 2012, with a range of 5 percent in either direction.
Caterpillar Chairman and CEO Doug Oberhelman said uncertainty about the global economy was the reason.
"Last quarter and then again a month ago at MINExpo, we discussed economic and geopolitical headwinds facing the world and we are certainly continuing to see the impact of those uncertainties in our business," he said. "Even so, we had a record third quarter and our entire organization is focused on finishing 2012 as the best year for sales and profit in our history. Despite the turbulence in the global economy, we continue to track toward our goals on cost control, margin improvement, product quality, safety and better product availability for our customers."
Wall Street rewarded the company for the third-quarter results and, perhaps because Caterpillar had previously talked of lowering its outlook, seemed not too concerned about the more conservative view.
At the close of trading on the New York Stock Exchange on Monday, Caterpillar stock was $85.09 a share, up $1.23 a share. More than 16 million shares were traded, more than twice the average daily volume.
In explaining the change in the outlook, the company said the decline in the sales and revenues outlook "reflects global economic conditions that are weaker than we had previously expected. In addition, Cat dealers have lowered order rates well below end-user demand to reduce their inventories. Production across much of the company has been lowered, resulting in temporary shutdowns and layoffs. Lower production will continue until inventories and dealer order rates move back in line with dealer deliveries to end users. The reduction in the profit outlook is in line with the lower sales and revenues outlook, partially offset by the gain on the sale of a majority interest in our third party logistics business."
The company previously announced a pair of one-week shutdowns of its East Peoria plants in November and December to bring production into line with demand.
"As we've moved through the year, we've seen continued economic weakening and uncertainty. It's definitely impacting our business with dealers intending to lower inventories and mining customers delaying some projects and reducing orders," Oberhelman said. "We're focused on being very nimble and taking actions to respond to the current environment while at the same time keeping our 2015 goals and expectations in mind. It requires a pragmatic and steady approach as we balance our actions in the short term with what we need to do to be prepared for better growth when the world economy improves."
Oberhelman also said the company does not expect global recession, even though it forecast economic growth would be only slightly better in 2013 than this year. Caterpillar expects modest economic growth in the United States, China and most of the developing world in 2013 but also expects problems to continue in Europe.
"We are taking a pragmatic view of 2013; we're not expecting rapid growth, and we're not predicting a global recession. At this point, we expect 2013 sales will be similar overall to 2012, but with a slightly weaker first half and a slightly better second half. While machine deliveries to end users have continued to hold up, our sales will probably remain relatively weak early in 2013 as dealers are likely to continue reducing inventories. When expected dealer inventory reductions level off and easing actions by central banks and governments around the world begin to improve economic growth, we expect our business will begin to improve," he said.
"While there's reason for optimism, and we're not expecting a global recession in 2013, we are prepared and stand ready to take action no matter what happens to the global economy," Oberhelman added.
Group President and Chief Financial Officer Ed Rapp expanded on the outlook in a meeting with the media Monday. He said he wouldn't characterize the change in the outlook as becoming more conservative, rather being realistic. "By providing an economic outlook we are probably being more transparent than a lot of companies. I don't know, really, how you bake more uncertainly into an outlook than we did today," he said.
Breaking down some of the 2013 economic outlook, Rapp said Caterpillar expects Europe will continue pushing its recessionary problems to the edge without making changes in economic policies. "The bigger impact that will come from Europe will be on global confidence," he said.
"The United States has a tremendous opportunity right now to lead globally, if we can get through the uncertainty and if China continues to recover. We are taking a more conservative view on China in 2013," he said.
Rapp acknowledged, however, the United States has its own looming financial crisis at the first of the year, when tax increases and spending cuts are slated to go into effect unless Congress adopts policy to prevent them from occurring. Still, that did not loom large in Caterpillar's preliminary 2013 outlook, he said.
"Our base assumption is that the U.S. will find its own solution. It might not be very pretty, but the government usually does the right thing," Rapp said.
Some highlights from Caterpillar's third quarter report included:
• Sales and revenues were up by 8 percent from a year earlier in both North America and the Asia/Pacific region but down by 1 percent in both Latin America and Europe.
• Sales in construction equipment were flat overall from a year earlier, but there were up by 23 percent in North America as construction activity in the United States has started to recover.
• Sales in mining and other resource industries increased 13 percent, including by 27 percent in Asia.
• Revenues in the company's Financial Products subsidiary were $776 million, up $19 million, or 3 percent, from a year earlier. The profit was $190 million, compared with $145 million in the third quarter of 2011.
• Caterpillar's full-time employment worldwide was 129,113 at the end of the quarter, compared with 121,513 a year earlier. The increase, the company said, was the result of growth and acquisitions, offset in part by divestitures during the year.
Paul Gordon is editor of The Peorian. He can be reached at 692-7880 or editor@thepeorian.com
