April 22, 2013 / 12:12 PM / in 4 years

Caterpillar profit misses, cuts outlook on weak mining sales

The Caterpillar logo is seen on a tractor in Gilbert, Arizona October 20, 2009.Joshua Lott

CHICAGO (Reuters) - Caterpillar Inc posted disappointing quarterly results and cut its 2013 profit forecast on Monday to reflect a drop in demand for heavy equipment from its mining customers.

But its shares gained nearly 1 percent to $81.21 in early New York Stock Exchange trading, helped by bullish comments from Chairman and Chief Executive Officer Doug Oberhelman that the mining sector has hit bottom and production was expected to ramp up in the second quarter, based on lower inventories in China and the United States.

The Peoria, Illinois-based company said it now expects to report a 2013 profit of $7 per share on sales of $57 billion to $61 billion. That was down from a previously estimated profit of between $7 and $9 a share on sales of $60 billion to $68 billion.

"Mining is the big culprit," said Longbow Research analyst Eli Lustgarten. "The key question now is not 2013, but 2014 - will it be up or down?"

The news came as the company, the world's largest maker of construction and mining equipment, reported a weaker-than-expected first-quarter profit.

Caterpillar said it earned a profit of $880 million, or $1.31 a share, down from $1.59 billion, or $2.37 a share, in the year-ago quarter.

Analysts had expected the company to report a profit of $1.40 per share. Sales during the period fell 17 percent to $13.20 billion.

Caterpillar also said on Monday that it would resume a share buyback for the first time in five years.

CEO Oberhelman said the revised 2013 outlook reflects a sales decline of about 50 percent from 2012 for traditional Cat machines used in mining.

However, Oberhelman suggested optimism, telling CNBC that it was the first time in three years he has seen relative stability around the world, noting inventories in China and the United States have come down significantly.

"We don't want to be overly optimistic but it certainly feels better than the last two springs," he said.

The decline in first-quarter sales was led by a drop in revenue from mining products, which plummeted 23 percent. Sales of construction equipment fell 17 percent and sales of gas and diesel power systems declined 12 percent, the company said.

With mining orders falling because of a slump in the price of many commodities, including coal, Caterpillar needed a strong rebound from other customers, including residential construction, to offset that weakness.

But that increased demand from builders has not materialized fast enough, in part, because some jumped the gun last spring when unseasonably warm weather combined with signs of the nascent economic recovery in the United States prompted many construction equipment customers to place orders for new equipment. In the end, the optimism proved to be a little premature, Lustgarten said.

Robert Wertheimer, a principal at Vertical Research Partners, said the drop in mining orders that Caterpillar was experiencing was "in line" with what its rivals were seeing. "We met with several competitors last week and they all seem to be having similar experiences," Wertheimer said. "It's not a (market) share issue at Caterpillar."

Its shares were not taking a bigger hit, analysts said, because Caterpillar affirmed the weakness several times, most recently earlier this month, when it laid off 11 percent of its workforce at the Decatur, Illinois, plant that makes mining equipment.

In January, the company also specifically warned that results for the first quarter would be "well below" those posted during the comparable period last year as dealers, awash in product, tried to sell off existing inventory before placing new orders.

Reporting by James B. Kelleher; Writing by Patricia Kranz; Editing by Maureen Bavdek

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