Issue link: http://read.dmtmag.com/i/211845
Caterpillar Q3 2013 Financial Results TRENDS AND TIDBITS Caterpillar's third-quarter sales and revenues of $13.4 billion were 18 percent below the same quarter in 2012, and profit plunged 44 percent. Profit per share for third quarter 2013 was $1.45, down from third-quarter 2012 profit per share of $2.54. Cat revised its 2013 outlook and now expects sales and revenues to be about $55 billion -- about 14 percent below firstof-the-year forecasts after three quarters of downgrades -- with profit per share of about $5.50. "This year has proven to be difficult, with expected sales and revenues nearly $11 billion lower than last year," said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman. "That is a 17 percent decline from 2012, with about 75 percent of the drop from Resource Industries, which is principally mining. We expect Resource Industries to be down close to 40 percent for the full year and Power Systems' and Construction Industries' sales to each be down about 5 percent." Not only is mining down from 2012, the demand for equipment has been difficult to forecast. Mining equipment is Caterpillar's most profitable product category, and those fat margins were one of the reasons the company made mining equipment a focus of its M&A activity in recent years, buying Bucyrus, a U.S. maker of giant excavators and shovels, for $US7.6 billion in 2010, and ERA Mining, a Chinese mining equipment company, for $US654 million in 2012. But the ink was barely dry on those deals before Caterpillar's global mining customers, facing investor backlash over unpopular takeovers, budget overruns and falling metal prices, slashed capital spending, slowed development on some projects and shelved others entirely, and postponed or cancelled new equipment orders. The steep 2013 decline in sales brought about substantial actions to reduce production, costs and employment, including many temporary plant shutdowns, a reduction of more than 13,000 of Cat's global workforce, temporary layoffs for thousands of salaried and management employees, reductions in program spending, substantially lowered incentive pay, lower capital expenditures and implementation of general austerity measures. The company expects to limit the decline in 2013 operating profit from 2012 to about 30 percent of the sales and revenues change. This is at the high end of the company's incremental operating profit pull through target range and is a result of unfavorable product mix as the sales decline is weighted toward higher margin mining products. Nevertheless, 2013 has been a good year for cash flow. In the third quarter, the Machinery and Power Systems (M&PS) operating cash flow was $2.1 billion, and the company is expecting 2013 to be its second best year in history for cash flow and not far from the all-time record. Strong cash flow has enabled the company to improve its balance sheet, repurchase $2 billion in Caterpillar stock this year, raise the quarterly dividend by 15 percent and improve the debt-to-capital ratio. Debt-to-capital was 34 percent at the end of the third quarter -- substantially better than the 58 percent recorded at the end of 2008 -- and is expected to improve by year end. Caterpillar expects better world economic growth in 2014, but tempers its preliminary outlook, acknowledging global risks and uncertainties. The direction of U.S. fiscal and monetary policy remains uncertain; Eurozone economies are far from healthy, and China continues to transition to an economy led more by consumer demand. In addition, despite higher mine production around the world, new orders for mining equipment remain very low. As a result, the company is holding its outlook for 2014 sales and revenues flat, with 2013 in a plus or minus 5 percent range. The company expects 2014 sales growth in Construction Industries, relatively flat sales in Power Systems and a decline in Resource Industries' sales. ● www.cat.com IDA UNIVERSAL November-December 2013 Trends continued on page 73 69