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CAT Misses Across The Board, Slashes Sales And Profit Outlook

Tyler Durden's picture




 

Caterpillar just can't catch a break. First, in January the firm was punk'd by a Chinese acquisition fraud, forcing the company to write off half of its Q4 earnings. This, of course, in the aftermath of the miss in both Q3 and Q4 earnings. And now we get the latest disappointing news from the firm as Q1 numbers are reported lower across the board.

  • Q1 EPS $1.31, Exp $1.38; this includes a tax benefit of $87 million
  • Q1 revenue: $13.2 billion, Exp. $13.8 billion
  • Guides much lower, with revenue now seen at $57-61 billion, compared to $60-68 billion previously
  • CAT forecasts profit per share of $7.00, compared to $7.00-9.00 previously.
  • Operating cash flow of $900MM, but all of it generated from net working capital, i.e., inventory liquidation
  • And when you can't spend on capex, you spend on buybacks: CAT to extend buyback through 2015

So much for that.

Some more details on the firm's cash flow management: all from net working capital:

"In our year-end 2012 financial release, we said the first quarter of 2013 would be challenging, and it certainly was.  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," said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman.

The summary outlook:

We have revised our outlook for 2013 to reflect sales and revenues in a range of $57 to $61 billion, with profit per share of about $7.00 at the middle of the sales and revenues outlook range.  The previous outlook for 2013 sales and revenues was a range of $60 to $68 billion and profit per share of $7.00 to $9.00. 

 

"What's happening in our business and in the economy overall is a mixed picture.  Conditions in the world economy seem relatively stable, and we continue to expect slow growth in 2013," said Oberhelman.

 

"As we began 2013, we were concerned about economic growth in the United States and China and are pleased with the relative stability we have seen so far this year.  In the United States, we are encouraged by progress so far and are becoming more optimistic on the housing sector in particular.  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.  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," said Oberhelman.

 

"From an operational standpoint, we have taken action to align production, costs and capital expenditures with the sales and revenues outlook.  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," added Oberhelman.

 

* * *

 

The primary reason for the decline in the outlook is lower mining-related sales in our Resource Industries segment.   Over the past quarter, orders for mining equipment have been depressed and far below the first quarter of 2012.  As a result, our expectations for mining-related sales in 2013 have been reduced substantially, and our revised 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.

And the full outlook:

2013 Outlook

 

2013 Economic Outlook

 

  • Our expectation for world economic growth is about the same as the outlook included with our year-end 2012 financial results.  We anticipate overall world economic growth of about 2.5 percent—a small improvement from 2.3 percent in 2012.
  • Purchasing manager indicators improved in the first quarter, and industrial production increased in the majority of countries.  Both indicate that world economic growth is benefiting from monetary easing that started 19 months ago.
  • Central banks continued easing in the first quarter, and we expect the world economy will continue to improve in 2013.

 

Key points related to this outlook include:

  • The modest recovery in the world economy since the financial crisis has failed to address high unemployment.  The number of unemployed in the world is up about 17 percent since 2007, and central banks are gradually switching their policy focus from inflation to growth and unemployment.  We believe this trend will continue throughout 2013.
    Most central banks reduced interest rates over the past 19 months, and average short-term interest rates in the world are near lows reached during the financial crisis.  We expect further rate cuts in coming months.
  • With interest rates at or near record lows in many countries, some central banks injected more funds (quantitative easing) into financial systems to promote lending and economic growth.  With both Japan and the United States following aggressive quantitative easing policies, we expect other countries will eventually implement similar policies.
    Unprecedented central bank easing has raised concerns about potential inflation problems.  Central banks that raised interest rates to address inflation concerns have returned to lower rates as most economies have not shown an ability to support higher interest rates or reduced liquidity.
  • Inflation has shown few signs of becoming a problem, particularly in developed economies.  After nearly five years of near record low interest rates, average inflation in the world is near a 40-year low.  We believe that high unemployment and modest economic growth will keep inflation under control at least through this year.
  • Demand for most metals and thermal coal increased last year, despite 2012 being the weakest year for economic growth in the current recovery and with industrial production in over half the world's economies below 2008 peaks.
  • Economic growth in 2013 should improve demand for most commodities, and we expect most prices will average slightly higher in 2013 than in 2012.  We expect copper prices to average more than $3.25 per pound in 2013 and iron ore about $135 per ton.  Iron ore is benefiting from an increase in steel production in China.
  • U.S. natural gas prices averaged over 40 percent higher in the first quarter than a year earlier, reducing its attractiveness in generating electricity.  As a result, we expect Central Appalachian coal prices should increase from $63 per ton in 2012 to $65 in 2013.  We expect average Australian thermal coal prices in 2013 to be close to last year's $96 per metric ton.  World coal production will likely increase slightly, with growth occurring in Asia.
  • Last year, Australian mining companies increased capital expenditures more than 50 percent while their profits declined 33 percent.  This imbalance, which we believe occurred in other countries as well, has prompted mining companies to reduce capital spending.  We expect this adjustment will continue throughout 2013.

Developed Countries:

  • Developed economies recovered slowly from the financial crisis.  Combined economic output in these countries is about even with the 2008 peak, representing nearly five years with no economic growth.  Industrial production in the majority of these countries is below pre-recession peaks, and unemployment is up more than 40 percent.
  • As a result, we expect interest rates in developed countries will remain at record lows throughout 2013, and that central banks will inject more liquidity into financial systems.  Growth in developed countries should gradually accelerate throughout the year, improving to about 1.5 percent for the full year.
  • We anticipate the U.S. Federal Reserve Board will maintain short-term interest rates near zero for the fifth consecutive year and expand its balance sheet at least another 30 percent.  Consumer inflation averaged only 1.4 percent annually from 2008 to 2012 and is unlikely to develop into a problem this year.  Overall, our expectations for U.S. economic growth are about the same as our previous outlook.  We continue to expect growth of at least 2.5 percent in 2013.
  • Housing starts in the United States averaged a 969 thousand-unit-annual rate in the first quarter of this year, the highest rate since 2008.  We expect further improvement, with 2013 starts of about 1.1 million units.  Housing affordability is near a record high, home prices are recovering, and the number of unsold new homes is near a 50-year low.
  • Nonresidential construction in the United States improved in 2012, and we expect further increases this year.  Positives include lower vacancy rates, higher property prices and some improvement in state and local government spending.
  • Coal production in the United States declined 8 percent in the first quarter of 2013, but prices were within 5 percent of last year.  Electric utilities generated more electricity and appeared to be allocating a higher fuel share to coal.  We expect that some improvement in utilities coal burn and continued high coal exports should result in coal production down about 1 percent for the full-year 2013.
  • We believe that economic policies in the Eurozone have not changed enough to address record high unemployment, a 20-year low in construction and over a year of declining output.  We expect the Eurozone economy will decline close to 0.5 percent this year.
  • We expect the rest of Europe will have modest growth, allowing marginal growth for all of Europe in 2013.  Construction, however, is likely to decline.
  • The Bank of Japan announced a target of a 45-percent increase in the monetary base by the end of this year, up from 20-percent growth in March.  This aggressive program appears to be improving confidence.  We expect about 1-percent growth in the Japanese economy.  Construction orders, which are already increasing, should be up compared with last year.

 

Developing Countries:

  • Developing countries cut interest rates in early 2013, and we expect further cuts this year will bring average rates close to lows reached during the financial crisis.  We expect lower interest rates will improve economic growth to over 5 percent in 2013.
  • Total credit advanced by the financial sector in China increased by a record amount in the first quarter, purchasing manager surveys improved, and infrastructure investment was up about 20 percent.  Inflation has remained below target, which will likely allow the government to continue pro-growth policies throughout this year.
  • As a result, we expect the Chinese economy will grow more than 8 percent this year, up from 7.8 percent last year.  Construction activity is increasing, and we expect it will be up for the year.  Imports of most key commodities increased in the early months of the year, and further growth is expected.
  • Most other Asian countries also eased economic policies, and combined economic growth is expected to improve this year.  Better growth should benefit construction.
  • Inflation in most Latin American countries is within their central banks' target ranges, which should allow central banks to keep interest rates low.  We expect regional economic growth will improve to over 3.5 percent in 2013, benefiting from a recovery in Brazil and slightly higher commodity prices.  Growth in construction has outpaced that in the overall Latin American economy in each year of the current recovery, a trend that we expect will continue in 2013.
  • We expect economic growth in both Africa/Middle East and CIS will be over 3.5 percent in 2013, close to growth rates achieved in 2012.  Most countries maintained policy stances close to those adopted in the financial crisis, and we do not expect any major policy changes during the rest of this year.

Risks

  • We believe that most countries tightened economic policies too early in the recovery from the financial crisis.  As a result, world economic growth slowed in 2011 and again in 2012, resulting in the worst recovery in decades.  Most countries have since reversed some of this tightening, but economies have been slower to respond than in 2009.  Our concern is that central banks will again tighten policies prematurely as better economic growth emerges, particularly as some face criticism about the measures taken to deal with the slow economic growth.
  • Eurozone leaders have shown almost no inclination to adopt more pro-growth economic policies.  Without policy changes, we believe the current downturn, already five quarters long, may last throughout 2013.

So much for the dead CAT bounce for the fourth year in a row.

 

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Mon, 04/22/2013 - 07:47 | 3483061 babylon15
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bullish!

Mon, 04/22/2013 - 07:55 | 3483081 GetZeeGold
GetZeeGold's picture

 

 

I just downloaded the plans to 3D print my bulldozer.

 

Not having to payoff the unions is a big plus.

Mon, 04/22/2013 - 07:59 | 3483092 espirit
espirit's picture

CAT-atonic, bitchez.

Mon, 04/22/2013 - 08:16 | 3483143 chumbawamba
chumbawamba's picture

Israel hasn't been razing as many Palestinian homes as of late.

I am Chumbawamba.

Mon, 04/22/2013 - 07:58 | 3483094 toys for tits
toys for tits's picture

 

CAT is going deeper in the hole.

Mon, 04/22/2013 - 08:02 | 3483105 TotalCarp
TotalCarp's picture

is the plan to buy enough shares back that EPS can never miss again?

Mon, 04/22/2013 - 08:03 | 3483115 Sudden Debt
Sudden Debt's picture

Alcoa went down so it's not as big of a surprise here.

 

Mon, 04/22/2013 - 08:38 | 3483214 espirit
espirit's picture

Maybe CAT needs to revamp their business model based on the Transformers franchise, and turn dirt-dumpers into money-dumpers.

I'm sure Ben Shalom would endorse with the full faith of .gov.

Mon, 04/22/2013 - 11:04 | 3483762 Panafrican Funk...
Panafrican Funktron Robot's picture

"mining-related sales in 2013 have been reduced substantially"

Funny how messing with commodities prices has unintended consequences.  

Mon, 04/22/2013 - 08:11 | 3483134 insanelysane
insanelysane's picture

Definitely bullish because in the advanced stages of a recovery there is simply less demand for construction equipment.  The roads and bridges have all been fixed as the Potus has been in office for over 4 years presiding over the greatest recovery of all time.

Mon, 04/22/2013 - 07:52 | 3483066 ParkAveFlasher
ParkAveFlasher's picture

CAT's outta the bag.

BTW "Chinese acquisition fraud" is no joke, it is happening to an alarming degree across many sectors.  

Mon, 04/22/2013 - 07:50 | 3483071 digalert
digalert's picture

CAT mows down green shoots?

Mon, 04/22/2013 - 07:59 | 3483096 Sudden Debt
Sudden Debt's picture

It's just getting cheaper to use humans with a shovel to dig holes...

 

Mon, 04/22/2013 - 08:05 | 3483117 fonzannoon
fonzannoon's picture

the stock is flat. Apparently this is actually priced in.

Mon, 04/22/2013 - 08:14 | 3483138 Cursive
Cursive's picture

@fonzanoon

This is the pause that refreshes.  In 2013, Chauncy Gardner says there will be growth after the Spring.  Shirley Mclain has been reincarnated as John McCain.  The love scene, circa 2013, is even more bizarre than 1979.

Mon, 04/22/2013 - 08:18 | 3483147 fonzannoon
fonzannoon's picture

Cursive speaking of bizarre....how about this crazy asshole...

"Bill Gross, manager of the world's largest bond fund for Pimco, has launched a stinging attack on efforts by Britain and much of the euro zone to cut debt rapidly with severe austerity measures, warning that such action risks stifling recovery.

"The U.K. and almost all of Europe have erred in terms of believing that austerity, fiscal austerity in the short term, is the way to produce real growth. It is not," Mr Gross told the Financial Times. "You've got to spend money."

Is this the same Bill Gross?

Mon, 04/22/2013 - 08:28 | 3483182 Cursive
Cursive's picture

@fonzanoon

Steve Winwood co-wrote a song about Bill Gross - the low spark of high-heeled boys.  This SOB only talks his own book.  He's probably trying to unload some PIIGS bongs and is pissed the ECB is taking his "advice."  Now, if it were BernanQE....

Mon, 04/22/2013 - 08:32 | 3483203 fonzannoon
fonzannoon's picture

I'm starting to think I should not be trusting these guys.

 

Mon, 04/22/2013 - 08:59 | 3483267 StychoKiller
StychoKiller's picture

'The percentage you're paying is too high-priced, while you're living beyond all your means.  And the man in the suit has just bought a new car with the profits he made on your dreams!'

Mon, 04/22/2013 - 07:50 | 3483072 negative rates
negative rates's picture

And don't forget, they got Cyprus'ed too.

Mon, 04/22/2013 - 07:51 | 3483073 JustObserving
JustObserving's picture

Can they not find $10 billion in intangible revenue?  The US found $500 billion in intangibles to add to the GDP.

Mon, 04/22/2013 - 07:53 | 3483075 ZippyBananaPants
ZippyBananaPants's picture

I wonder if this has anything to do with me having to get up at 4am last night to crap out that porterhouse I had for dinner?

Mon, 04/22/2013 - 07:54 | 3483083 Silverhog
Silverhog's picture

Did it smell like horse shit?

Mon, 04/22/2013 - 07:53 | 3483078 lizzy36
lizzy36's picture

Cramer will be able to average down......again.

One of his top 10 picks coming into 2013. 

Mon, 04/22/2013 - 08:02 | 3483111 Sudden Debt
Sudden Debt's picture

That's the good part of running those Orphan funds!!!

IF IT RUNS OUT OF MONEY, THEY HAVE CHEAP LABOR TO MAKE CHEAP T-SHIRTS TO REFILL THE FUND!!!

 

Mon, 04/22/2013 - 07:55 | 3483080 ska11153
ska11153's picture

Cramer is an idiot.

One would think with IBM and CAT both missing the market would be going down, but futures are positive once again.  What a joke

Mon, 04/22/2013 - 07:57 | 3483089 francis_sawyer
francis_sawyer's picture

Heavy machinery orders down due to tepid interest in bitcoin mining...

Mon, 04/22/2013 - 07:57 | 3483091 Sudden Debt
Sudden Debt's picture

KITTY CAT!!! STOP DIGGING ALL THOSE HOLES!!! YOU'RE MESSING UP THE BACKYARD!!

Mon, 04/22/2013 - 08:00 | 3483100 Sudden Debt
Sudden Debt's picture

OH MY GOD!!!!

NOW THE COMPANY WILL HAVE TO SEND BILLIONS OF DOLLARS LESS TO THE CAYMANS THIS QUARTER!!!

THE HORROR!

Mon, 04/22/2013 - 08:01 | 3483101 overmedicatedun...
overmedicatedundersexed's picture

this does not matter, look over here, why GE did great, see everything is fine. cat should tool up to make those police assault tanks DHS will buy em all.

Mon, 04/22/2013 - 10:20 | 3483593 Blues Traveler
Blues Traveler's picture

GE has $80 Billion dollar mark to market writedown that they are being allowed to keep off the balance sheet.

Mon, 04/22/2013 - 08:03 | 3483109 hooligan2009
hooligan2009's picture

wow...a tax CREDIT for making so much money...do they have a cyprus shelf company or is it just the caribbean paradise island tax shelter..

note to cat ceo..when are you going to help reduce the deficit by getting a huge set of infrastructure orders out of the US government, for which you will also not pay tax..

how much did the ceo make and what was his tax rate? 5%?

Mon, 04/22/2013 - 08:06 | 3483121 Sudden Debt
Sudden Debt's picture

Every big  company has a paradise tax shelter.

The reason is... that it helps to keep trillions out of the economy and slows down inflation...

Maybe true but that money in those accounts collect interest which drains it's money from the economy even more which creates even bigger sinkholes into the economy.

Mon, 04/22/2013 - 08:11 | 3483135 toys for tits
toys for tits's picture

Just remember, corporations DO NOT PAY TAXES.  All taxes submitted to the government are passed on to the consumer in higher prices.  Additionally, they have all the expense of tax accountants, which is also passed on in the form of higher prices.

Mon, 04/22/2013 - 08:37 | 3483216 Urban Redneck
Urban Redneck's picture

That should raise the question of whether the consumer would like to pay more or less for a given item...  Unfortunately, most seem to skip that rather logical next step.

Mon, 04/22/2013 - 08:13 | 3483139 e-recep
e-recep's picture

are the corporate profits finally coming down or am i just hallucinating?

Mon, 04/22/2013 - 08:22 | 3483153 toys for tits
toys for tits's picture

They're coming down, but you're still hallucinating.

Nothing to see here.

Mon, 04/22/2013 - 09:05 | 3483283 StychoKiller
StychoKiller's picture

Good, because it looked like you were responding to a monkey wearing sunglasses!

Mon, 04/22/2013 - 08:15 | 3483141 BandGap
BandGap's picture

Peoria is a shithole already. Fucking Illinois is the WORST place to do business in the US.

Mon, 04/22/2013 - 08:24 | 3483165 Van Halen
Van Halen's picture

But Obama had said, "Caterpillar blah blah blah blah

BLAH BLAH BLAH BLAH BLAH...

Success!"

Mon, 04/22/2013 - 08:38 | 3483218 dcohen
dcohen's picture

000Bama may be right though - countless experiments have shown that monkeys consistently beat top market analysts in stock picking.

Mon, 04/22/2013 - 08:49 | 3483242 espirit
espirit's picture

Blind Chimps with darts?

Sounds like 1999.

Mon, 04/22/2013 - 08:42 | 3483233 Tombstone
Tombstone's picture

Earnings are not required for the markets to explode higher.  Benny will provide the dynamite to blast us higher. 

Mon, 04/22/2013 - 08:51 | 3483250 SheepDog-One
SheepDog-One's picture

Nevermind all the reality, Bernank says 'no sign of inflation'...so crank up the printing presses it's time to pump futures!

Mon, 04/22/2013 - 09:09 | 3483302 forwardho
forwardho's picture

This article is little more than a trip down an accounting rabbit hole.

Where are the y / y production numbers?

How many actual machines will be produced?

The flowery BS about global recovery rates is distraction, the production pipeline is shutting down.

Less and less is been produced from ore to a finished product.

The world economy is running on inertia alone.

 

Mon, 04/22/2013 - 09:20 | 3483352 gigeze787
gigeze787's picture

Bernanke commands Ctrl-P CAT, the "market" responds:

CNBC's pre-open propaganda:

Futures Gain Amid Earnings; CAT Ticks Higher

Just like growing cracks in a dam...

The fundamentals do not matter.

Until they do.

Mon, 04/22/2013 - 11:34 | 3483894 gigeze787
gigeze787's picture

Moar CNBC schizo propaganda:

Caterpillar CEO: Most Confident I've Been in 2 Years

Translated: The PTB handed the CAT CEO the script, and he read it as ordered.

(US Govt order for new bulldozers to follow next week.)

Mon, 04/22/2013 - 09:55 | 3483489 KickIce
KickIce's picture

Not a problem, we just added 500 billion to GDP by including our most prominent exports: fraud, corruption and inflation.

Mon, 04/22/2013 - 10:53 | 3483728 youngman
youngman's picture

Down here in Colombia..someone bought an old restaurant in the middle of nowhere...and put about 5 million worth of heavy equipment on it...lots of Cat and John Deere..strange location for me....I hope he sells it because there is a lot of road work to do down here..wether the government will spend the money on roads is another matter..they seem to have their pet projects....this country needs new roads to get the peoples produce to market...quickly and efficently and without to much damage or cost...its not there yet...

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