Caterpillar Sees No Sign of Upturn in Mining Industry

Caterpillar Inc. (CAT), the largest maker of mining machinery, forecast full-year sales and earnings that fell short of analysts’ estimates as it said there’s no sign of an upturn in the industry in 2014.

Profit excluding restructuring costs will be $6.20 a share, the Peoria, Illinois-based company said today in a statement. The average of 24 analysts’ estimates compiled by Bloomberg was for $6.23. Revenue will be as much as $56 billion, compared with the $56.3 billion average estimate. Caterpillar shares fell.

Mining companies have cut billions of dollars of capital spending amid surplus commodities production and a drop in prices for coal, iron ore and other metals. Caterpillar, which completed a string of mining-related acquisitions when the market was stronger, said today the industry remains “weak” and order levels are still low.

“We are seeing our customers defer maintenance,” Chief Executive Officer Doug Oberhelman said on a conference call discussing a decline in mining equipment sales. “The bottom is just behind us. Our numbers are minuscule in terms of ticking up, but they are ticking up.”

Caterpillar’s sales of mining machinery through dealers dropped 38 percent in the second quarter, with declines in every region except North America.

Photographer: Luke Sharrett/Bloomberg

Caterpillar reported second-quarter sales that trailed analysts’ estimates. Close

Caterpillar reported second-quarter sales that trailed analysts’ estimates.

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Photographer: Luke Sharrett/Bloomberg

Caterpillar reported second-quarter sales that trailed analysts’ estimates.

Revenue Decline

The “mining slump is the No. 1 headwind for Caterpillar,” Matt Arnold, a St. Louis-based analyst with Edward Jones, said by phone. “It won’t last forever, but the question is, how well can the company harness improvement in its other segments in the meantime?”

Caterpillar second-quarter sales dropped 3.2 percent to $14.2 billion, trailing the $14.5 billion average estimate.

Net income rose to $999 million, or $1.57 a share, from $960 million, or $1.45, a year earlier. Profit excluding one-time items was $1.69 a share, beating the $1.52 average estimate.

Caterpillar fell 3.1 percent to $105.04 at the close in New York, the biggest decline in two months. Even with today’s drop, the shares have increased 26 percent in the past year.

Caterpillar also is the largest manufacturer of machinery for construction and saw an improvement in that segment with sales up 11 percent. U.S. construction spending in May was the highest since December, according to Census Bureau data. A slowdown in construction equipment sales in China, the former Soviet republics, Africa and the Middle East region is offsetting the company’s sales outlook.

“There is the slowdown in demand for construction equipment in the emerging markets,” Arnold said. “So the question is, how much does the pickup in construction really offset the decline in mining?”

Dealer Sales

The company said yesterday that dealer sales of its machines fell 10 percent in the quarter, a slower pace of decline than the 12 percent drop in the three months through May.

“Construction machinery in North America looks good, mining is still terrible but not worsening,” Karen Ubelhart, an analyst at Bloomberg Intelligence, said today by phone. “It looks like cost control is better than expected and there’s a positive inventory swing compared with last year.”

For Caterpillar’s resources industries segment, retail machinery sales dropped 38 percent in the second quarter compared with a 46 percent decline in the three months through May, the company said in a filing. For construction industries, machinery sales growth slowed to 3 percent from 4 percent.

The decline in sales for energy and transportation accelerated to 10 percent. For construction industries, sales growth slowed to 3 percent from 4 percent.

To contact the reporter on this story: Elena Popina in New York at epopina@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net Carlos Caminada

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