NEW YORK CITY -- Caterpillar (IW 500/18) Wednesday cut its 2013 profit forecast after reporting a 43.5% drop in second-quarter earnings due to weak demand in its operating segments, especially mining.
Caterpillar, which sells machinery and engines to the construction, mining and petroleum sectors, said net income came in at $960 million on revenues of $14.6 billion, down from last year's profit of $1.7 billion on revenues of $16.7 billion.
Those results translated into $1.45 earnings per share, below the $1.70 forecast by analysts. Revenues also fell short of the $14.9 billion estimate.
The company lowered its 2013 global economic growth outlook to just over 2%, compared with its previous forecast of 2.5%.
"Although we expect some improvement in the second half, the improvement will be less than previously expected," the company said.
The company had previously flagged mining equipment demand as a weak point given that several large miners like Rio Tinto had cut back capital spending in light of weaker metals demand in China and elsewhere. Revenue in the resource segment, which is dominated by mining, tumbled 34% to $3.6 billion.
Caterpillar did not give an outlook on 2014 mining. But the company cited recent mining surveys that estimate mining capital spending will drop 5%-10% in 2013 and nearly 20% in 2014.
But while the 2013 spending decline affects mining equipment where Caterpillar is active, the 2014 cuts may hit other parts of mining that do not involve Caterpillar, the company said.
Despite the big drop in mining-related revenues, "the underlying fundamentals of the mining industry are better than you might think if you were only considering our sales," Caterpillar said.
The company also expects metals demand growth in China to return.
"In our view the long-term prospects for mining remain very attractive."
Revenue in construction industries dropped 9%, while power systems revenue fell 5%.
Caterpillar chief executive Doug Oberhelman said a big driver of the lower earnings was a sharp $1 billion reduction in dealer machine inventories, as the company's dealers sell more products from Caterpillar product demand centers and buy less product from Caterpillar.
The company expects an additional $1.5-$2 billion in inventory declines in the second half of 2013.
"With the sharp reduction in dealer inventory and the decline in mining, 2013 is turning out to be a tough year and we've already taken action to reduce costs," Oberhelman said, citing temporary factory shutdowns, rolling layoffs and other cuts.
Caterpillar cut its 2013 profit forecast to about $6.50 per share on revenue of $56 to $58 billion. The prior estimates were $7 earnings per share and $57 to $61 in revenue.
Caterpillar purchased $1 billion in shares in the second quarter and plans an additional $1 billion in stock repurchases in the third quarter.
Copryright Agence France-Presse, 2013
