Caterpillar first-quarter profits fall 45% due to inventory cuts, low mining demand

|  April 23, 2013 |

Cat Oberhelman Bauma

Caterpillar Chairman and CEO Doug Oberhelman at the Bauma 2013 equipment show.

A steep decline in demand for mining equipment coupled with reductions in inventory are to blame for Caterpillar’s slumping first-quarter financial results, the company reports.

The company reported a profit of $880 million in the first quarter of 2013, a 45-percent tumble from the $1.586 billion the company pulled in the first quarter of 2012. Sales and revenues experienced a fall as well. First-quarter 2013 sales and revenues dropped 21 percent from $16 billion in 2012, to $13.2 billion.

In a prepared statement, CEO Doug Oberhelman said the company expected this past quarter to be “challenging” and a big factor was a “significant year-to-year swing” in inventory.

“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,” Oberhelman said. “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.”

In response, the company revised its 2013 outlook. It now expects sales and revenues in a range of $57 billion to $61 billion. Previously, the outlook expected a range of $60 billion to $68 billion.

Oberhelman said though the company was concerned with economic growth in the U.S. and China at the beginning of the year, it is now “more optimistic on the (U.S.) housing sector” while growth in China “remains consistent with slow growth in the world economy.”

The company has experienced the effects of the mining industry’s reduction in spending. Caterpillar’s first-quarter sales of mining equipment were $3.67 billion, a decrease of 34 percent. Meanwhile, operating profit in the first quarter from mining tumbled to $477 million, a decrease of 59 percent.

The company has adjusted its mining outlook accordingly with Oberhelman saying, ”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.”

There were no surprises for the company when it came to construction equipment. First-quarter sales were down 17 percent from the same time last year to $4.19 billion. Operating income from construction was down 61 percent to $239 million.

“Considering the magnitude of the decline in sales and production, I am very pleased with our performance in the first quarter. We did a good job managing costs and made even more progress on inventory reduction,” Oberhelman says. “Operating cash flow was a highlight in the quarter and improved nearly $900 million from the first quarter of 2012. Better cash flow and the strength of our balance sheet are enabling us to resume stock repurchases,” Oberhelman added.

Caterpillar is reviving its stock buyback program in the second quarter this year and expects repurchases of about $1 billion.

You can watch a video of  Caterpillar Group President and Chief Financial Officer Brad Halverson delivering and discussing the financial results below.



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