Caterpillar sets cautious tone for year after low profit

Mon Jan 28, 2013 3:49pm EST
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By Ernest Scheyder

(Reuters) - Caterpillar Inc (CAT.N: Quote), the world's largest maker of construction equipment, posted a 55 percent drop in quarterly profit on Monday and set a cautious tone for the year, citing weak demand and oversupply.

Executives at the company, which last year slashed production to reduce inventory, balanced their optimism on recent improvements in U.S. housing starts with concern about China's slowing growth, the U.S. deficit and eurozone instability.

However, investors took heart in Caterpillar's 2013 profit forecast of $7 to $9 per share, lifting the stock 1.8 percent in afternoon trading.

Of the 25 analysts in the United States, Canada, Britain and South Korea who cover Caterpillar's stock, seven had cut 2013 profit estimates in the past month, with the lowest at $7.63 per share, according to Thomson Reuters I/B/E/S.

High inventory remains a short-term challenge for the Peoria, Illinois-based company. While Caterpillar cut its equipment inventory glut by $2 billion sequentially in the fourth quarter, levels remain $1 billion higher than a year ago.

Caterpillar still has an oversupply of products in China, and executives said they hope to sell some of it by June.

Quarterly results were hit by a charge of 87 cents per share after the company discovered accounting fraud at a Chinese coal mining supplier it bought last year.

In a somber note on the global economy, Caterpillar said the "most significant favorable factor" for 2013 profit will be the absence of the ERA accounting fraud writedown, not increased demand for its machines.   Continued...

The CAT logo is seen on back of a Caterpillar excavator machine at a work site in Detroit, Michigan January 25, 2013. REUTERS/ Rebecca Cook