News Column

Caterpillar Q3 Profit Jumps, but Demand Slows

Oct. 22, 2012

Alejandra Cancino

Caterpillar Inc. on Monday said its third-quarter profit was up 49 percent, but it cut its full-year earnings outlook as sales decline.

Caterpillar said it now expects 2012 earnings of $66 billion with profit between $9 to $9.25 per share.

The company had expected earnings between $68 billion to $70 billion and profit of about $9.60 per share.

The Peoria-based heavy-equipment maker said demand is not growing as fast as it had expected worldwide, leaving dealers with too much inventory. To burn it off, dealers have cut order rates. Caterpillar reacted by temporarily shutting down plants and laying off workers to reduce production levels.

To blame is economic uncertainty around the world with slow growth in the U.S. and developing countries.

Mike DeWalt, Caterpillar director of investor relations, said in a conference call that the company is not expecting a recession, but it is also not expecting any improvement in world economic growth until the second half of 2013.

Specifically, DeWalt said the company is expecting sales of mining equipment to be down next year, as companies reduce capital spending due to lower metal and coal prices and increasing operating costs. However, DeWalt said, the company expects some growth after the November presidential election in the U.S.

Lower sales in mining are expected to be offset by higher sales in construction equipment in the U.S., Iran and China. On the downside in construction, DeWalt said the company is not expecting economic recovery in Europe and is planning for lower sales there.

"Now, to be clear, we're not expecting China to make up the ground that was lost in 2012, but we do expect some modest improvement from the very disappointing 2012," DeWalt said.

Still, Doug Oberhelman, Caterpillar's president and chief executive, said the company is encouraged by an increased level of building permits in China and the announcement of a major infrastructure project. Oberhelman said that Chinese dealers seem to have a positive outlook, though he acknowledged there haven't been concrete orders.

As it looks forward into the next year, Caterpillar said it expects earnings to be the same as this year, plus or minus 5 percent, with improvement in the United States, China and most of the developing world, but with continuing difficulty in Europe.

Caterpillar posted a third-quarter profit of $1.70 billion, or $2.54 per share, up from $1.14 billion, or $1.71 per share, a year ago. Revenues rose 5 percent to $16.45 billion.

Third-quarter profit was aided by higher prices and U.S. sales. It also included a pre-tax gain of $273 million from the sale of a logistics business in which Caterpillar had a majority interest.

Shares rose 1.38 percent in morning trading to $85.02 per share.

Source: (c)2012 the Chicago Tribune Distributed by MCT Information Services