UPDATE 4-Caterpillar posts higher 2nd-quarter profit; sales fall

Thu Jul 24, 2014 1:53pm EDT

(Adds company comments, updates stock price)

By James B. Kelleher

July 24 (Reuters) - Caterpillar Inc reported higher-than-expected second-quarter earnings and raised its full-year forecast on Thursday but said sales fell as a continued slump in the global mining industry offset a rebound in the North American building sector.

The stock was down 3.5 percent at $104.54 on Thursday afternoon.

The company, the world's largest maker of earth-moving equipment, raised its full-year profit outlook to $5.75 a share, from $5.55 a share. The outlook was lifted, in part, by a $2.5 billion stock repurchase it said it would make during the current quarter.

But Caterpillar, which had forecast full-year sales in the range of $53.2 billion to $58.8 billion, adjusted its outlook lower to a range of $54 billion to $56 billion.

It said the cut reflected weak construction sales in once fast-growing overseas markets including China, as well as concern about the effect rising interest rates will have on sales in Brazil.

Mike DeWalt, Caterpillar's point man for business risk management, said tensions in the former Soviet republics - often referred to as the Commonwealth of Independent States (CIS) - were also hurting activity in the region.

"The CIS is not huge for us. But even though it's not big, it's come off a lot."

Second-quarter sales in Latin America fell 16 percent, "primarily due to lower end-user demand for mining equipment."

Ann Duignan, analyst at J.P.Morgan, said the selloff reflected investor concerns about "growing macro headwinds" in emerging markets.

Caterpillar reported quarterly earnings of $999 million or $1.57 a share, up from $960 million, or $1.45 a share, last year.

The company, which also makes railroad locomotives as well as diesel and turbine engines, said sales fell 3 percent to $14.15 billion.

In North America, sales increased 6 percent, primarily due to improving demand for construction equipment in the United States.

Sales of mining equipment, which have been in a multiyear decline, fell 29 percent during the quarter, offsetting an 11 percent increase in construction equipment.

Caterpillar Chairman and CEO Doug Oberhelman complained that mining customers were not only not buying new equipment but also delaying maintenance on the machines they already own, hurting part sales.

Nevertheless, he said he was encouraged because Caterpillar's mining equipment sales did not decline between the first and second quarters - the first time that metric has not experienced a quarter-over-quarter deterioration since 2012.

"I fully believe, as do our customers, that the bottom is just behind us," he said.

Caterpillar said it pared its full-time payroll by more than 7,000 workers year over year - about 6 percent of its workforce.

But Kwame Webb, a Morningstar analyst, pointed out the company's temporary and contract workforce grew by nearly 400, a sign, he said, of a "strategy to make the business model more variable over time." (Reporting by James B. Kelleher in Chicago; editing by Jeffrey Benkoe and Matthew Lewis)