With every passing quarter, Caterpillar, perhaps the last truly industrial company in the epically misnamed Dow Jones (non)-Industrial Average, provides an ever clearer answer to the question we posed this past July, namely "Is CAT Nothing But The Dow's Most Overpriced Dog?" The most recent affirmative response came moments ago when the company announced Q3 earnings which were for lack of a better word, disastrous: EPS came at $1.45 on expectations of $1.67, revenues missed by a whopping $1 billion, when the sales print $13.4 billion missed expectations of $14.47 billion - perhaps the biggest top-line miss in the company's history since the Lehman bankruptcy. But it was the guidance that is slaying the stock right now: "The company has revised its 2013 outlook and now expects sales and revenues to be about $55 billion, with profit per share of about $5.50. The previous outlook for 2013 sales and revenues was a range of $56 to $58 billion with profit per share of about $6.50 at the middle of that range." But don't worry: despite our continuous warnings about the sad state of this company the trend, it is only "transitory", and any minute now thing may get better. Unless they don't.
"This year has proven to be difficult, with expected sales and revenues nearly $11 billion lower than last year. That is a 17 percent decline from 2012, with about 75 percent of the drop from Resource Industries, which is principally mining. We expect Resource Industries to be down close to 40 percent for the full year and Power Systems' and Construction Industries' sales to each be down about 5 percent," said Caterpillar Chairman and Chief Executive Officer Doug Oberhelman.
Not only is mining down from 2012, the demand for equipment has been difficult to forecast. Orders for new mining equipment began to drop significantly in mid-2012 and have continued at very low levels. As a result of weak orders and feedback from end users, the sales and revenues outlook provided in January of 2013 included a decline in mining sales. At that time, based on strong mine production for many commodities, the company's outlook expected that order rates would improve later in 2013.
"Unfortunately, order rates have not picked up much despite continuing strong commodity production. That has caused us to ratchet down our sales and revenues outlook as we have moved through 2013," Oberhelman said.
And the outlook:
From an economic standpoint, the company expects better world growth in 2014. However, significant risks and uncertainties remain that could temper global economic growth. The direction of U.S. fiscal and monetary policy remains uncertain; Eurozone economies are far from healthy and China continues to transition to a more consumer-demand led economy. In addition, despite higher mine production around the world, new orders for mining equipment remain very low. As a result, the company is holding its outlook for 2014 sales and revenues flat with 2013 in a plus or minus 5 percent range. The company expects sales growth in Construction Industries, relatively flat sales in Power Systems and a decline in Resource Industries' sales.
"There are encouraging signs, but there is also a good deal of uncertainty worldwide as we look ahead to 2014, and our preliminary outlook reflects that uncertainty. Despite prospects for improved economic growth and continued strong mine production around the world, we won't be increasing our expectations for Resource Industries until mining orders improve. We can't change the economy or industry demand, but we've taken many actions to align our costs with the environment we're in currently. While we've done much already, we're not finished and expect to take deeper actions to improve our cost structure and balance sheet. We're not seeing bright spots in mining yet, but the turnaround will happen at some point, and when it does, we'll be ready to respond," Oberhelman added.
Sure. "At some point" it will happen. Just not now and not for the foreseeable future. In fact, as long as the Fed is monetizing, kiss any recovery goodbye.
But that's ok: who needs revenues, and certainly earnings, when all Bernanke needs to do is crank up the P/E multiple expansion by one more notch. And all shall be well until next quarter.