By James R. Hagerty
Caterpillar Inc. (CAT) promised further efforts to drive costs
down after reporting a surprisingly steep 44% drop in third quarter
earnings.
The Peoria, Ill.-based maker of heavy equipment continues to
suffer from a plunge in demand for mining equipment but also
surprised analysts by reporting downward pressure on prices for
construction equipment.
As part of a cost-cutting drive, Caterpillar said it reduced its
global work force to 137,104 people, down 9% from a year earlier.
The company said it instituted "general austerity measures across
the company." Capital spending this year will be less than $3
billion, down from $3.4 billion in 2012.
"We're not finished and expect to take deeper actions to improve
our cost structure," Doug Oberhelman, Caterpillar's chief
executive, said in a prepared statement. The company said it was
considering "rationalization" of some smaller facilities, more job
cuts and consolidating management functions, among other
things.
One bright spot was China, where third-quarter sales increased
30% from a year earlier to $800 million, the company said.
Caterpillar said dealers' sales of its excavators there in this
year's first nine months were up from a year earlier, despite a
decline in industry-wide excavator sales. Caterpillar and other
foreign companies have been struggling to gain market share in a
Chinese market glutted by lower-priced machinery made by local
rivals.
Caterpillar reduced its forecast for full-year earnings per
share to about $5.50, compared with a prior forecast of $6.50. For
2012, Caterpillar reported record earnings of $8.48 per share.
Caterpillar cut its sales forecast for 2013 to $55 billion, down
from $65.88 billion a year earlier. The previous forecast for this
year was $56 billion to $58 billion.
Looking further ahead, Caterpillar said it expects 2014 sales to
be little changed from this year, falling into a range of plus or
minus 5%. Caterpillar reported "an increasingly competitive pricing
environment" for construction equipment. Demand for energy drilling
and well-servicing equipment was down, the company said.
For the third quarter, Caterpillar reported profit of $946
million, or $1.45 per share, down from $1.70 billion, or $2.54 per
share, a year earlier. Wall Street had expected earnings of $1.68
per share. Sales, including revenue from financing, dropped 18% to
$13.42 billion.
About three-quarters of the drop in sales was due to lower sales
of mining equipment, Caterpillar said. It expects the resource
industries segment, which mainly makes mining equipment, to show a
40% sales drop for the full year, while power systems, mainly
engines, and construction equipment fall about 5%.
To appease shareholders, Caterpillar has bought back $2 billion
of shares over the past two quarters and recently raised its
quarterly dividend 15%.
Write to James R. Hagerty at bob.hagerty@wsj.com
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