Heavy equipment maker Caterpillar has posted a 45 per cent drop in first quarter earnings, and cut its forecast for the rest of the year on the back of weak demand from mining customers.
Caterpillar posted first quarter profit of $880 million, down from $1.5 billion at the same time last year, with sales and revenues also falling to $13.2 billion from $15.9 billion last year.
The poor results come on the back of significant job cuts at the company's manufacturing plants in the US, with over 700 workers laid off from factories in South Milwaukee and Illinois.
“In our year-end 2012 financial release, we said the first quarter of 2013 would be challenging, and it certainly was,” Caterpillar CEO Doug Oberhelman said.
“As expected, inventory changes were a major factor. Caterpillar and our dealers usually add inventory in the first quarter to prepare for higher end-user demand in the spring and summer.
“In the first quarter of 2012, we added about $2 billion to inventory, but this year, we cut inventory by about a half billion dollars.
“In the first quarter of 2012, Cat dealers added machine inventory of about $875 million, and this year, they reduced machine inventory by about $700 million.
“Those are significant year-to-year swings, and coupled with moderating end-user demand, resulted in sales and revenues being down 17 percent.”
Oberhelman said he was happy with Caterpillar's performance given the significant drop in demand, and over the quarter the company had worked to cut costs and reduce its inventory.
He also said that while conditions would be tough for the rest of 2013, the company was confident about the long-term prospects of the business.
Caterpillar said the performance of most of its segments were in line with projections, but the forecast for its mining sector had “decreased significantly”.
“Our revised 2013 outlook reflects a sales decline of about 50 percent from 2012 for traditional Cat machines used in mining and a decline of about 15 percent for sales of machines from our Bucyrus acquisition,” Oberhelman said.
Taking a wider view of the global economy, Oberhelman said the outlook for 2013 was a “mixed picture” but the company had been pleased with growth in the US and China, which were previously rated serious concerns.
“In China, first quarter economic growth was slightly less than many expected, but in our view, remains consistent with slow growth in the world economy,” he said.
“In fact, our sales in China were higher in the first quarter of 2013 than they were in the first quarter of 2012, and machine inventories in China have declined substantially from a year ago.”
Despite the brighter picture emerging from China Oberhelman said the company remained cautious and did not want to be “overly optimistic” about its performance.
“From an operational standpoint, we have taken action to align production, costs and capital expenditures with the sales and revenues outlook,” he said.
“While 2013 will be a challenging year, we are confident about the long-term prospects for our business, and when conditions improve, the steps we have taken will position us well to serve our customers and deliver better financial results.”