Caterpillar's disappointing earnings bad omen for mining

Caterpillar Inc. (NYSE: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 one-time items will be $6.20 a share, the Peoria, Illinois-based company said today in a statement. The average estimate of 24 analysts 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 1.7 percent before the start of regular trading in New York.

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.

The “mining slump is the number one headwind for Caterpillar,” Matt Arnold, a St. Louis-based analyst with Edward Jones, said by phone yesterday. “It won’t last forever, but the question is, how well can the company harness improvement in its other segments in the meantime?”

Caterpillar’s sales of mining machinery through dealers dropped 38 percent in the second quarter, with declines in every region except North America. While the pace of the drop has slowed, mining customers continue to rationalize.

Caterpillar posted second-quarter sales of $14.2 billion that trailed the average estimate of $14.5 billion.

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.

Construction pickup

The shares fell to $106.50 at 8:17 a.m. in New York.

Caterpillar is also 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.

“There’s a pickup in residential construction and non- residential activity, and that definitely bodes well with Caterpillar’s construction segment,” said. “North America is the brightest spot.”

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.

For Caterpillar’s resources industries segment, retail machinery sales dropped 38 percent, 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.

(Caterpillar executives will discuss the results on a conference call at 11 a.m. New York time, which can be accessed via the company’s website at www.caterpillar.com.)

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