Caterpillar Rides Rough Terrain in Third-Quarter 2013 as Mining Markets Prove Weak, Cuts Outlook for Sales, Capex

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Researched by Industrial Info Resources (Sugar Land, Texas)--Heavy machinery manufacturer Caterpillar Incorporated (NYSE:CAT) (Peoria, Illinois) reported a sharp overall decline in third-quarter 2013, as conditions in the company's mining markets failed to improve and dealers cut back on inventories. Total profits were reported to be $946 million, compared with $1.7 billion in third-quarter 2012.

Total revenues stood at $13.42 billion, an 18.38% decrease from the same period last year. Almost 80% of the decline came from the mining-focused Resource Industries segment. Orders for new mining equipment began to weaken in mid-2012; the company predicted that orders would improve in late 2013, but that has not been the case. Ongoing weaknesses in the global mining market--particularly in the Asia/Pacific region, which saw the sharpest regional sales decline due to falling demand in Australia--has led to a drop in capital expenditures, many temporary plant shutdowns, and thousands of companywide layoffs. Sales were lower in all other segments as well, with 7% drops in both Power Systems and Construction Industries.

More than half of the overall sales decline was a result of changes in dealer inventories. While dealers increased machine and engine inventories by about $800 million in third-quarter 2012, they decreased these inventories by the roughly the same amount in third-quarter 2013. Currency had an unfavorable impact of about $188 million, while the net effects of acquisitions and divestitures diminished the bottom line by about $87 million.

Capital expenditures for the first nine months of 2013 were reported to be $1.86 billion, compared with $2.27 billion in the same period of 2012.

Industrial Info is tracking $172 million in active projects involving Caterpillar, including the $20 million expansion of a forklift truck manufacturing plant in Houston, Texas. The project involves expanding the plant by 35,000 square feet and the distribution warehouse by 24,000 square feet, as well as installing production and assembly equipment, increasing capacity 40%. The plant is owned and managed by Mitsubishi Caterpillar Forklift America Incorporated (Houston), a joint venture between Caterpillar and Mitsubishi Heavy Industries Limited (Tokyo, Japan).

"Despite the drop in Resource Industries... our outlook expects 2013 to be the third-highest year for sales and revenues in our history," said Mike DeWalt, the vice president of strategic service for Caterpillar, in a conference call.

"For most of our major machine families, and that includes mining overall, our sales of products to end customers are doing better than our machine competitors as a whole," he later added. "We've also done a good job executing in China, and sales there are up about 20% year to date, and about 30% in third quarter."

Capital expenditures for full-year 2013 are expected to be less than $3 billion, compared with $3.4 billion in 2012. The company has revised its expectations for 2013 sales revenues downward to about $55 billion, a 17% drop from 2012, with the previous outlook at between $56 billion and $58 billion. Sales revenues in the Resource Industries segment are expected to be about 40% below 2012's results.

Caterpillar executives expect sales revenues for full-year 2014 to be roughly the same as those of 2013, give or take 5%. Although executives anticipate stronger global growth in 2014, uncertain fiscal policies in the U.S. and still-flagging economies in the European Union remain major problems. New orders for mining equipment are likely to remain low, indicating a sales decline in the Resource Industries segment. However, the Construction Industries segment is expected to see growth.

"We're still seeing strong mine production--in fact, some of the big mining companies are setting production records," DeWalt said in the conference call. "But despite that, we're still not receiving nearly as many orders as we expected, and our outlook today is lower as a result. With the outlook now at $55 billion, we expect the full year to be down almost $11 billion from 2012, and about $8 billion of that is Resource Industries."

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Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, three offices in North America and nine international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.