* Profit, sales fall short of Street forecasts
* CEO says mining will continue to falter in 2014
* CEO says mining recovery inevitable in 'the long term'
* Shares fall 6 percent in afternoon trading
By James B. Kelleher
CHICAGO, Oct 23 Caterpillar Inc's
ill-timed bet on the global commodity boom came back to haunt it
yet again on Wednesday, forcing the heavy equipment maker to
post a lower-than-expected profit.
The company also cut its full-year forecast and offered a
first glimpse of 2014 sales that suggested weakness from mining
customers would continued to bedevil sales in the new year.
The news sent the Peoria, Illinois-based company's shares
down more than 6 percent in afternoon trading on the New York
During a conference call to discuss the results, Caterpillar
Chairman and Chief Executive Doug Oberhelman said he was
confident mining customers would begin ordering again, but
acknowledged he did not have any idea when that would happen.
But in recent discussions with mining executives, Oberhelman
said they had all made one thing clear: "Any expansion in the
near term is dead, it's over, it's not going to
Mining equipment is Caterpillar's most profitable product
category and those fat margins were one of the reasons the
company made mining equipment a focus of its M&A activity in
recent years, buying Bucyrus, a U.S. maker of giant excavators
and shovels, for $7.6 billion in 2010, and ERA Mining, a Chinese
mining equipment company, for $654 million in 2012.
But the ink was barely dry on those deals before
Caterpillar's global mining customers, facing investor backlash
over unpopular takeovers, budget overruns and falling metal
prices, slashed capital spending, slowed development on some
projects and shelved others entirely, and postponed or canceled
new equipment orders.
That pullback, which caught Caterpillar by surprise, has
forced the company to cut its outlook three times so far this
On Wednesday, it forced the company to admit that sales next
year are likely to be flat compared with 2013, and could be down
as much as 5 percent.
Caterpillar said it had temporarily shut some plants,
furloughed thousands of salaried and management
employees and reduced its full-time workforce by 3,000 during
the third quarter. Over the past year, the company has
cut more than 13,000 jobs, about 10 percent of the global
It said additional workforce reductions and the
consolidation of plants were possible.
Ann Duignan, an analyst at JPMorgan Securities, said the
latest cut to the company's 2013 profit forecast suggested that
layoffs, furloughs and other cost-reduction strategies were
falling short of goals, and that "costs are not coming out as
quickly as expected."
Caterpillar, the world's largest maker of earth-moving
equipment, reported a third-quarter profit of $946 million, or
$1.45 a share, down from $1.7 billion, or $2.54 a share, a year
Analysts on average expected earnings of $1.66 a share,
according to Thomson Reuters I/B/E/S.
Total sales and revenue fell 18 percent to $13.4 billion.
The downturn in mining sales is not the company's only
resource-related headache. In January, Caterpillar said it was
writing off three-quarters of the money it paid for ERA after
uncovering "deliberate, multi-year, coordinated accounting
misconduct" at a subsidiary of the Chinese firm.
In the minds of many analysts, the ERA debacle symbolized a
rash rush by Caterpillar to double down on a notoriously
With no uptick in orders expected, Caterpillar said it now
expects a full-year 2013 profit of $5.50 a share on sales of
about $55 billion, down from an earlier forecast of $6.50 a
share on sales of $56 billion to $58 billion.
It is the third time the company has cut its full-year
There were few bright spots in Caterpillar's latest report
on its worldwide operations. It said it was seeing signs of an
improvement in the U.S. construction market, and that dealer
deliveries to end users were up year-over-year. That raised the
possibility the inventory liquidation that has weighed on
its results this year might come to an end in 2014.
But even here there were signs of possible trouble.
Profitability from construction sales was poor during the most
recent quarter, and Caterpillar warned it could continue to
be under pressure because of an, "increasingly competitive
"The third quarter was hideous, the fourth quarter will
stink and the guidance for 2014 is very, very subdued," said
Brian Langenberg, the principal at Langenberg and Co, a research
firm focused on the industrial sector.
Nevertheless, Langenberg thought Wednesday's sell-off
represented a buying opportunity, in part, because of the
underlying improvement in construction.
In afternoon trading, Caterpillar shares were down
6.2 percent at $83.62, well below the 52-week high of
$99.70, reached in February, but above their 52-week low of
$79.50, touched in April, when the company issued the first of
its profit warnings.