Caterpillar Inc. announced third-quarter sales and revenues of $13.423 billion, down from $16.445 billion in the third quarter of 2012. Profit per share for the third quarter of 2013 was $1.45, down from third-quarter 2012 profit per share of $2.54.
The company has revised its 2013 outlook and now expects sales and revenues to be about $55 billion, with profit per share of about $5.50. The previous outlook for 2013 sales and revenues was a range of $56 to $58 billion with profit per share of about $6.50 at the middle of that range.
“This year has proven to be difficult with expected sales and revenues nearly $11 billion lower than last year. 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,” said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman.
Not only is mining down from 2012, the demand for equipment has been difficult to forecast. Orders for new mining equipment began to drop significantly in mid-2012 and have continued at very low levels. As a result of weak orders and feedback from end users, the sales and revenues outlook provided in January 2013 included a decline in mining sales. At that time, based on strong mine production for many commodities, the company’s outlook expected that order rates would improve later in 2013.
“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,” Oberhelman said.
A key element of Caterpillar’s strategy is focused on cost flexibility and reducing costs in a downturn. The magnitude of the decline in sales in 2013 has resulted in substantial actions to lower production, costs and employment. Actions taken already include many temporary plant shutdowns, a reduction of more than 13,000 in its global workforce throughout the past year, 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 across the company.
Caterpillar also announced the closing of its Kilgore, Texas, plant. About 100 workers are expected to lose their jobs in the shutdown, which is scheduled for completion by year-end. The Kilgore plant makes dippers and ballast boxes used in giant electric-powered mining shovels. Ballast-boxes production will shift to Caterpillar’s plant in South Milwaukee, Wis., while dippers will be moved to a plant in Wamego, Kan.
From an economic standpoint, the company expects better world growth in 2014. However, significant risks and uncertainties remain that could temper global economic growth. The direction of U.S. fiscal and monetary policy remains uncertain; Eurozone economies are far from healthy and China continues to transition to a more consumer-demand led economy. 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 sales growth in Construction Industries, relatively flat sales in Power Systems and a decline in Resource Industries’ sales.
“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 can’t change the economy or industry demand, but we've taken many actions to align our costs with the environment we’re in currently. While we’ve done much already, we're not finished and expect to take deeper actions to improve our cost structure and balance sheet. 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.