Caterpillar Sees More Pain as Sales Sag to Five-Year Low

  • `The environment remains extremely challenging,' company says
  • Sales fall as slumping commodities batter drillers, miners

For Caterpillar Inc., the commodities rout has yet to hit bottom.

Third-quarter profit fell more than estimated on the lowest sales in five years at the Peoria, Illinois-based company as plunging commodity prices dim demand for mining and energy equipment. Next year’s sales to those industries will drop as much as 10 percent, Caterpillar said in a statement Thursday.

Slumping crude-oil prices have battered drillers, while a slowdown in China, the biggest consumer of energy and metals, has created a glut of metals, leaving mining customers with idled equipment. Chief Executive Officer Doug Oberhelman said on a conference call after the results were announced that he hasn’t yet seen signs of a recovery.

“There’s a weak feel to everything here,” Stephen Volkmann, a New York-based analyst at Jefferies, said in an interview. Caterpillar’s energy and transportation segment “is carrying the load here, and the concern is how long that can last.”

Net income fell to 62 cents a share from $1.63 a year earlier, Caterpillar said in the statement. Profit excluding one-time items was 75 cents a share, trailing the 77-cent average of 19 analysts’ estimates. Sales fell 19 percent to $11 billion, the lowest since the second quarter of 2010 and short of the $11.3 billion average estimate.

Latin America sales dropped 31 percent as economic weakness dented construction-equipment demand, with “the most significant decrease” in Brazil, the company said. Sales in the Asia-Pacific region plunged 25 percent, and were 17 percent lower in North America.

Caterpillar’s first indication of a recovery in its mining segment will be when mining customers begin to bring aging trucks in to be rebuilt, Oberhelman said on the conference call .

“That’s the most concrete signal we’d see that it’s the bottom, and we haven’t seen that,” Oberhelman said.

While Caterpillar doesn’t expect commodity prices to rise next year, the company has collected data showing its machinery is being used for more hours per day at mines, which will hasten the need for replacement parts.

Global investment in copper mines will fall to $11.1 billion next year, the lowest since 2007 and less than a third of spending in 2012, according to Citigroup Inc.

Last month, Caterpillar announced a plan to cut as many as 10,000 jobs, or 9 percent of its workforce, through 2018 as the effects of a collapse in oil prices ripple through the industry. The company said at the time it expected sales of about $48 billion this year. On Thursday, Caterpillar said it is “likely that we will end the year within a percent or two of the ‘about $48 billion’ outlook, with $48 billion the likely top end.”

Caterpillar rose 1.7 percent to $70.88 at the close in New York. The shares have slumped 23 percent in 2015.

Before it's here, it's on the Bloomberg Terminal.