Caterpillar predicts bounce back in 2014 as building picks up

FILE - This Thursday, Feb. 28, 2013, file photo shows a parking lot at Caterpillar Belgium, in Gosselies, Belgium. Caterpillar Inc. reports quarterly financial results before the market opens on Monday, Jan. 27, 2014. (AP Photo/Yves Logghe, File)
FILE - This Thursday, Feb. 28, 2013, file photo shows a parking lot at Caterpillar Belgium, in Gosselies, Belgium. Caterpillar Inc. reports quarterly financial results before the market opens on Monday, Jan. 27, 2014. (AP Photo/Yves Logghe, File)

CHICAGO - Caterpillar Inc., the largest maker of mining and construction equipment, forecast earnings and revenue Monday for 2014 that topped analysts’ estimates as the recovery in the U.S. building industry boosts sales of bulldozers and excavators.

Sales will be about $56 billion plus or minus 5 percent, the company said in a statement Monday. The average of 13 estimates compiled by Bloomberg was $55.5 billion.

Profit will be $5.85 a share excluding $400 million to $500 million in restructuring costs. That’s more than the $5.77 average estimate. Peoria, Ill.-based Caterpillar also said it approved a $10 billion share buyback plan through 2018 and will repurchase about $1.7 billion in stock in the first quarter that will complete its previous authorization.

“The buyback, restructuring and slightly better-than-expected results combined will make it a better report than expectations,” Larry De Maria, a New York-based analyst for William Blair & Co., said Monday.

Shares dropped 2.6 percent Friday amid a general decline in equities. A selloff in developing-nation currencies last week led to concern that financial markets will become more volatile.

Caterpillar forecast world economic growth of about 3 percent in 2014, up from about 2 percent last year. It predicted sales in its powersystems and construction industries units will rise 5 percent. The resources segment, which consists mainly of mining equipment, will see revenue fall about 10 percent, it said.

On Monday, Chairman and Chief Executive Officer Doug Oberhelman said that though the depth of the mining slump is “surprising,” the worst of the cost cuts for the company is “behind us.”

Caterpillar’s fourth-quarter net income was $1 billion, or $1.54 a share, up from $697 million, or $1.04 a share, a year earlier. The average of 20 analysts’ estimates was for earnings of $1.27. Sales dropped to $14.4 billion from $16.1 billion, beating the $13.6 billion average projection.

Monday’s report is being interpreted as a bottom for Caterpillar as the improvement in construction and power systems offsets the decline in mining, said Stephen Volkmann, a New York-based analyst for Jefferies & Co.

Construction industry sales rose 20 percent in the fourth quarter because dealers didn’t cut as much inventory as a year ago and deliveries to customers in Latin America, North America and China rose, Caterpillar said.

U.S. construction spending in November was the highest since March 2009, according to the latest Census Bureau data. Both residential and nonresidential construction in the U.S. will improve, according to Seth Weber, an analyst for RBC Capital Markets in New York.

Construction machinery made up 29 percent of Caterpillar’s 2012 sales, according to data compiled by Bloomberg. North America and China, which account for half of global construction equipment demand, should lead market growth in 2014, Karen Ubelhart, a Bloomberg Industries analyst, said in a report Dec. 3.

In contrast, capital expenditure by the mining industry fell more than 25 percent in 2013 and is expected to drop at least 20 percent this year, Ann Duignan, a New York-based analyst for JPMorgan Chase, said in a Jan. 16 report.

From 2006-12, mining companies spent $676 billion, up from $174 billion in the previous seven years, Duignan said. Toward the end of that boom, Oberhelman acquired two companies to expand Caterpillar’s range of mining equipment.

In its largest deal, Caterpillar paid $8.6 billion for Bucyrus International Inc. in 2011. The next year it acquired ERA Mining Machinery in China for $790 million. The company later took a $580 million goodwill impairment charge after discovering accounting misconduct at part of ERA.

Meanwhile, the slowdown in mining orders has led to job cuts and plant closures. Caterpillar said in October that the company had fired more than 13,000 workers in the previous 12 months.

Oberhelman said Monday that he doesn’t regret buying Bucyrus. Given the cyclical nature of the mining industry, Caterpillar said it doesn’t make sense at the bottom of the cycle to make “large-scale physical changes” to its plants because current production is far below the expected replacement level and mine production is continuing to increase.

Business, Pages 21 on 01/28/2014

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