Caterpillar has announced a third cut to its earnings outlook for this year as the slump in the mining sector continues to weigh on the company’s results. The heavy equipment supplier now expects revenues of US$ 55 billion, down from US$ 56 – 58 billion and US$ 11 billion lower than 2012. The biggest cause of the drop in earnings has come from the mining sector, which is expected to close down 40% for the full year.
The announcement came as the company reported Q3 earnings of US$ 13.423 billion, down from US$ 16.445 billion on the same quarter last year. “This year has proven to be difficult,” said Doug Oberhelman, chairman and CEO of Caterpillar. “Unfortunately, order rates have not picked up much despite continuing strong commodity production. That has caused us to ratchet down our sales and revenues outlook as we have moved through 2013.”
As a result the company has temporarily shut plants, reduced its global workforce by more than 13,000, temporarily laid off thousands of salaried and management employees, reduced programme spending and substantially lowered incentive pay and capital expenditures, as well as implementing of general austerity measures across the company.
Caterpillar also gave the first indications of the expectations for next year with the company cautiously expecting better world growth in 2014 but noting substantial risks to global economic growth, including US fiscal and monetary policy, continuing weakness in the eurozone and the Chinese transition to a more consumer-demand led economy.
In addition to these general trends, new orders for mining equipment remain very low and as a result the company is holding its 2014 outlook flat with 2013 in a plus or minus 5% range, with earnings from resource industries dropping again.
“There are encouraging signs, but there is also a good deal of uncertainty worldwide as we look ahead to 2014 and our preliminary outlook reflects that uncertainty. Despite prospects for improved economic growth and continued strong mine production around the world, we won't be increasing our expectations for resource industries until mining orders improve […] We're not seeing bright spots in mining yet, but the turnaround will happen at some point, and when it does, we'll be ready to respond," Oberhelman added.
Caterpillar and the mining industry: a tale of woe
The latest results follows a string of bad news stories following the company’s acquisition of Bucyrus in 2010 for US$ 7.6 billion and ERA Mining, a Chinese mining equipment manufacturer, in 2012. Since then, capital expenditure in the mining industry has been slashed as the major mining companies suffered from a plunge in commodity prices. Caterpillar was also forced to take a US$ 580 million writedown on the ERA purchase after uncovering serious accounting misconduct at the company.
Edited from various sources by Jonathan Rowland
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