Caterpillar Suffers from Weak Demand for Mining Equipment in First-Quarter 2013, Sees Decline Continuing

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Researched by Industrial Info Resources (Sugar Land, Texas)--Heavy machinery manufacturer Caterpillar Incorporated (NYSE:CAT) (Peoria, Illinois) reported a steep drop in its overall results for first-quarter 2013, as inventories were reduced companywide, and sales declined in all segments and almost all geographic regions. Profits were reported to be $880 million, a 44.51% decrease from first-quarter 2012.

Total sales and revenues stood at $13.21 billion, a 17.34% decrease from the same period last year. Unusually for a first quarter, Caterpillar decreased inventories by about $500 million to adjust for an expected decline in demand, particularly for mining-related equipment. Since the company had added about $2 billion in the first quarter of 2012 in anticipation of higher demand, this accounts for much of the year-over-year decline in sales and revenues. Caterpillar also incurred $171 million in costs related to acquisitions and divestitures, as well as $91 million from negative currency effects.

In the Power Systems segment, significant sales declines were seen in the electric power and industrial applications businesses. The Financial Products segment, however, saw a slight boost from higher average earning assets.

Capital expenditures for the first quarter were $896 million, compared with $844 million in first-quarter 2012.

Industrial Info is tracking about $727 million in active projects involving Caterpillar, including the $340 million expansion of a tractor manufacturing plant in Peoria, Illinois. The project involves installing new and supporting equipment to manufacture large track-type tractors (or bulldozers) and double the capacity. River City Construction (East Peoria, Illinois) is serving as the general contractor, and Oberlander Electric (East Peoria) and J.A. Fritch & Son (Peoria, Illinois) are serving as subcontractors. The project is expected to be completed in June.

"For the first time since the first quarter of 2012, our order backlog increased from the prior quarter's end," said Mike DeWalt, the corporate controller and director of investor relations for Caterpillar, in a conference call. "At the end of the first quarter of 2013, our backlog was $20.4 billion, and that's up from about $20.2 billion at year-end 2012. The increase in Power Systems and Construction backlog more than offset declines for Resource Industries, which is mostly mining."

Caterpillar executives have revised their sales and revenue outlook for 2013 to between $57 billion and $61 billion; at the end of the previous quarter, executives expected full-year 2013 sales and revenues to be within a $60 billion to $68 billion range. In particular, Caterpillar executives are continuing to cut back on their expectations for their mining-related businesses, as they expect to see a 50% sales decline from last year for mining-related machinery. Capital expenditures for 2013 are now expected to be less than $3 billion, compared with $3.4 billion in expenditures in 2012.

"Mining is the primary reason for the decline in the outlook," DeWalt said in the conference call. "Previously, we expected that after depressed order levels for mining during the second half of 2012, that we'd begin to see some improvement as 2013 unfolded. Unfortunately, that hasn't happened. Overall, mining orders have remained depressed. As a result, we've significantly reduced our expectations for mining sales in 2013." DeWalt added that the company is aggressively reducing costs to mitigate the impact of lower sales.

Still, executives are optimistic about the economic outlook for the U.S., especially for the housing sector, and China, where sales were higher than first-quarter 2012. The global economy is expected to see slow growth for the remainder of the year.

For more information, visit Industrial Info's North American Industrial Manufacturing Project Database.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, and eight offices outside of North America, 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.