Caterpillar Slashes Forecasts amidst Global Economic Weakness

on Oct 22, 2012

Caterpillar (NYSE:CAT), the world’s largest manufacturer of tractors and excavators often seen as a barometer for economic activity, slashed its full-year profits prognosis sharply.

**Full-year Forecasts and Third-Quarter Report**
On Monday 22 October shares of the machine-maker dipped 1.1 percent to $82.94 after the company announced it is cutting revenue and profit forecasts for the second time this year. The company reduced its full-year revenues forecast to $66 billion (£41.1 billion) from a $68-$70 billion (£42.4-£43.6 billion) range. Earnings-per-share were also lowered from $9.60 (£5.98) to a range of $9.00-$9.25 (£5.61-£5.77).

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“As we’ve moved through the year, we’ve seen continued economic weakening and uncertainty,” Chief Executive Doug Oberhelman said in a statement. According to him there will be no improvement in overall economic growth until the second half of 2013. Mr Oberhelman pointed at the Eurozone as the “most significant” risk to the business’ outlook for next year, while China appears “to be on the edge of something of a recovery”.

!m[The Manufacturer Delivers Impressive Third-Quarter Results Yet Remains Pessimistic on the Future](/uploads/story/617/thumbs/pic1_inline.png)Despite the reduction in full-year forecasts, third-quarter revenues were the best in Caterpillar’s history. The company registered a 49 percent year-on-year rise in its third-quarter profit to $1.7 billion (£1.06 billion) or $2.54 (£1.58) a share. From July to September the pre-tax gain was $237 million (£148 million), while total sales and revenue rose 6 percent to $16.45 billion (£10.3 billion).

**Senior Management Shuffle**
Two weeks ago Caterpillar announced that its CFO Ed Rapp will be taking over the responsibility for construction industries and growth markets effective 1 January 2013. Bloomberg reported that the new group president will have to relocate to Singapore as the company continues to work toward leadership in high-growth markets such as China. Brad Halverson, vice-president with responsibility for financial services, is expected to substitute Mr Rapp as CFO.

Despite Mr Oberhelman’s forecast that his company will be the market leader in China by 2015 at the latest, Caterpillar has in fact moved inventories out of the country after demand cooled and economic growth slowed. “I am confident our new leaders will build on the work of their predecessors as we move toward our 2015 goals and beyond,”
**New Hybrid Excavator**
On 16 October Caterpillar unveiled the first model in its new line of hybrid excavators shown to significantly lower customers’ operating and owning costs. The Cat 336 H captures energy when the machine slows down or stops, and then releases it as the machine accelerates. Because an excavator often has to repeat the same cycle every several seconds, this machine can provide significant energy savings opportunities.
“The new 336E H hybrid uses as much as 25 percent less fuel than the standard 336E, without sacrificing performance. No other hybrid machine in its class in the market can achieve these dramatic savings. Since fuel is one of the largest operating costs for our customers in general, quarry and heavy construction applications, this is a technology that directly improves their bottom lines.” said Gary Stampanato, the vice-president responsible for the Excavation Division, for the Sacramento Bee.


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