Illinois-based Caterpillar posts lower results, cuts outlook again

CHICAGO (Reuters) - Caterpillar Inc

posted a lower-than-expected quarterly profit on Wednesday and cut its full-year forecast for the third time as weak demand from mining customers continued to bedevil the heavy equipment maker.

The Peoria, Illinois-based company also provided its first forecast for 2014 sales, saying it expects essentially flat results to up or down 5 percent compared with 2013.

Caterpillar said it had eliminated 3,000 jobs during the third quarter and warned that further workforce reductions were possible.

Ann Duignan, an analyst at JPMorgan Securities, said the latest cut to the company's 2013 profit forecast suggested that layoffs and furloughs and other cost-reduction strategies were falling short of goals and that "costs are not coming out as quickly as expected."

In an interview with CNBC, Caterpillar Chairman and Chief Executive Doug Oberhelman said he was confident mining customers would begin ordering again but acknowledged he did not have any idea when that would happen.

"Long term, the mining customers I've talked to lately are very bullish," Oberhelman said. "But I don't know if long term is next year, five years or 10 years. But it will come back. We've seen it every single time."

Caterpillar, the world's largest maker of earth-moving equipment, reported a third-quarter profit of $946 million, or $1.45 a share, down from $1.7 billion, or $2.54 a share, a year earlier.

Analysts on average expected earnings of $1.66 a share, according to Thomson Reuters I/B/E/S.

Total sales and revenue fell 18 percent to $13.4 billion.

Mining equipment is Caterpillar's most profitable product category. The fatter 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 $7.6 billion in 2010, and ERA Mining, a Chinese mining equipment company, for $654 million in 2012.

In January, Caterpillar said it was writing off three-quarters of the money it paid for ERA after uncovering "deliberate, multi-year, coordinated accounting misconduct" at a subsidiary of the Chinese firm.

In the minds of many analysts, the ERA debacle symbolized a rash rush by Caterpillar to double down on a notoriously cyclical business.

But even before ERA blew up, the company's exposure to the resource industry was being questioned, as many of its key 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 canceled new equipment orders.

"When they cut back in new mines and expansions, and we've all seen that with our mining customers, it also impacted their investment in existing mines. And frankly we felt that," Oberhelman said.

In response, Caterpillar said it had temporarily shuttered some plants, furloughed thousands of salaried and management employees, and reduced its full-time workforce by 3,000 workers during the third quarter. Over the past year, the company has cut more than 13,000 jobs - about 10 percent of the global total.

It said additional workforce reductions and the consolidation of plants were possible.

"We're restaging our business, in construction, mining and energy, in a way to reduce costs so that when we see a return to revenue - which we will see - it's going to be a very nice time for us and we'll all be smiling again," Oberhelman told CNBC.

"But right now, we're looking at mining continuing to falter into 2014."

With no uptick in orders expected, Caterpillar said it now expects a full-year 2013 profit of $5.50 a share on sales of about $55 billion, down from an earlier forecast of $6.50 a share on sales of $56 billion to $58 billion.

It is the third time the company has cut its full-year forecast.

The revised sales outlook is nearly 17 percent, or $11 billion, lower than what Caterpillar posted last year - and about 75 percent of that decline is due to a drop in mining orders, the company said.

There were few bright spots in Caterpillar's latest report on its worldwide operations. It said it was seeing signs of an improvement in the U.S. construction market and that dealer deliveries to end users were up year-over-year. That raised the possibility that the inventory liquidation that has weighed on its results this year might come to an end in 2014.

But even here there were signs of possible trouble. Profitability from construction sales was poor during the most recent quarter, and Caterpillar warned that it could continue to be under pressure because of an "increasingly competitive pricing environment."

In late-morning trading, Caterpillar shares were down nearly 6 percent at $83.91, well below their 52-week high of $99.70, reached in February, but above their 52-week low of $79.50, touched in April, when the company issued the first off three profit warnings.

(Reporting by James B. Kelleher; Editing by John Wallace)