Caterpillar cuts 2015 forecast as growth slows

LAS VEGAS Mon Sep 24, 2012 6:39pm EDT

LAS VEGAS (Reuters) - Caterpillar Inc (CAT.N) cut its 2015 earnings forecast on Monday, blaming a perfect storm of sluggish economic recovery and sliding commodity prices around the world even as it stressed it does not expect the global economy to slip back into recession.

"We've seen a slowing in economic growth more than we expected," Caterpillar CEO Doug Oberhelman told analysts and reporters in Las Vegas. "We expect fairly anemic and modest growth through 2015."

Prices for coal and iron ore have dropped more than 20 percent this year, causing many customers of the world's largest maker of earth-moving equipment to rethink capital expenditures.

The company now expects to earn $12 to $18 per share in 2015, down from its previous forecast of $15 to $20.

"It's prudent, especially with what's happened in 2011 and 2012 in the economy, to readjust," Oberhelman said. "I, for one, am still thinking $15 to $20 (earnings per share by 2015), but we need better economic growth."

Caterpillar shares fell 2.2 percent to $88.88 in after-hours trading on Monday.

The new forecast comes a year after Caterpillar paid $7.6 billion for mining equipment maker Bucyrus International, the most in Caterpillar's 87-year history.

The buyout added mining shovels and draglines to the company's lineup of trucks and excavators to become the world's largest producer of mining equipment. Given the weak economy, though, some on Wall Street have questioned the timing of the deal.

Among the world's eight largest miners, only three are boosting capex spending next year. Vale (VALE5.SA), which has the largest capex budget among miners, plans to cut its 2013 mining budget by 4 percent from 2012 levels.

Capital expenditures in the mining sector could slip at least 10 percent by 2014, JPMorgan estimates.

Since roughly 70 percent of spending in mines is for large trucks, capex cuts are not good news for Caterpillar and peers that include Komatsu (6301.T).

Caterpillar spends roughly 30 percent of its own capex and most of its research and development dollars on mining products.

Given the mining market uncertainty, Caterpillar's forecast cut was not a complete surprise to Wall Street, where many had kept expectations low ahead of Monday's event.

The economic trouble has taken its toll on Caterpillar's stock price: shares have slipped 15 percent in the past six months.

Still, many analysts remain bullish, with price targets above $100 per share and hopes for the company to continue to provide the large equipment needed when a global economic recovery occurs.

The forecast cut is "a realistic reflection of the slowdown in the global economy," said Oliver Pursche of the GMG Defensive Beta Fund, which owns Caterpillar shares. "We're not overly surprised by the announcement."

Recent commentary from railroad Norfolk Southern (NSC.N) and FedEx Corp (FDX.N) has also tempered investor expectations about global and U.S. economic growth.

"Certainly in the short-term there are some headwinds, but long-term ... we're still bullish on Caterpillar," Pursche said.

CHINA & AUSTRALIA

Oberhelman, who joined the Peoria, Illinois-based company right out of college in 1975 and has had the top job since 2010, said Caterpillar remains committed to China despite slowing growth there.

"By 2015, at the latest, we will be the market share leader in China for all of our construction equipment," he said. "This little slowdown allows the industry to consolidate, and we intend to be there when it recovers and win there."

Excavator sales are down roughly 40 percent in China so far this year, though, and are expected to improve only slightly next year, according to data from Off-Highway Research.

Caterpillar began exporting Chinese-made machinery earlier this summer to the Middle East and Africa, part of a plan to offset a dip in China's economic growth.

In Australia, BHP Billiton (BHP.AX) and other miners have delayed expansion of mining projects and buying equipment.

Caterpillar acknowledged the slowdown there, but said it expects only a temporary blip and for sales to resume next year.

"We are seeing some delays" in Australia, Steve Dunning, the Caterpillar executive who oversees the mining business, said at the analyst presentation. "Some of our customers are pushing orders out six months, nine months. But we're talking in terms of months, not any longer than that."

Caterpillar executives spoke during the MINExpo mining exhibition in Las Vegas, a global convention for mining suppliers that takes place every four years.

In a sign of how seriously Caterpillar takes its investment in the mining sector, all 16 members of the company's board of directors flew to Las Vegas for the convention.

The company spent heavily on MINExpo, securing the largest exhibitor space at 55,000 square feet and hosting 6,000 customers.

Caterpillar displayed more than 100 products, including a locomotive so heavy that the company had to reinforce the floor at the Las Vegas Convention Center.

(Additional reporting by Nick Zieminski in New York; Editing by Phil Berlowitz)

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