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updated: 9/25/2012 9:21 AM

Caterpillar cuts 2015 profit outlook as mining spend falls

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Bloomberg News

Caterpillar Inc., the world's biggest construction and mining equipment maker, cut its forecast for 2015 earnings after commodity producers reduced capital expenditure.

Caterpillar said profit will be $12 to $18 a share, compared with previous projections of $15 to $20. While a global recession remains possible, Caterpillar is forecasting moderate and "anemic" growth through 2015, Chairman and Chief Executive Officer Doug Oberhelman said yesterday in a presentation to analysts at the MINExpo industry conference in Las Vegas. Construction activity in emerging markets will probably show modest improvements, he said.

"We've seen a slowing in economic growth that was more than we expected," he said. "We think '13 could look like 2012 in terms of worldwide economic growth."

Oberhelman has bet on a continuation of growth in commodity demand by buying mining-equipment maker Bucyrus International Inc. for $8.6 billion last year and agreeing in November to acquire ERA Mining Machinery Ltd. in China. His plans are coming under pressure as mining companies cut capital expenditures after economic expansion slowed in China, the world's largest user of coal and metals.

Caterpillar fell 2.1 percent to $88.93 at 9:33 a.m. in New York. The shares have declined 1.4 percent this year, while the Dow Jones Industrial Average, of which Caterpillar is a member, has advanced 11 percent.

'More Reasonable'

The lowered forecasts for 2015 are "more reasonable," Stephen Volkmann, an analyst at Jefferies & Co. in New York, said in a report.

Global mining capital expenditures will drop 14 percent through 2014 from a peak of $136 billion this year, JPMorgan Chase & Co. said in a Sept. 21 report. BHP Billiton Ltd., the world's biggest mining company, last month delayed an estimated $68 billion of projects. Australian iron-ore producer Fortescue Metals Group Ltd. on Sept. 4 cut its full-year spending forecast by 26 percent to $4.6 billion.

Chinese excavator sales have fallen 36 percent this year, according to JPMorgan. Caterpillar said last month it shut its main Chinese excavator plant for much of July. The company said Sept. 21 that it's planning to temporarily idle a component plant in Illinois for a week around Thanksgiving and a week around Christmas.

'Downside to Budgets'

"Despite some improvement in commodity prices, the global economic prospects don't instill confidence to increase capital expenditure," Karen Ubelhart, a Bloomberg Industries analyst, said Sept. 20. "There's more downside to budgets and equipment cancellations."

Caterpillar's profit excluding one-time items will rise 29 percent to $9.55 a share this year, according to the average of 23 analysts' estimates compiled by Bloomberg. That growth will slow to 8.4 percent in 2013, the estimates show.

The company also forecast yesterday that sales will rise to $80 billion to $100 billion in 2015, from $60.1 billion in 2011. Capital and acquisition spending will be lower in the next three or four years compared with the last few years, Oberhelman said.

There isn't "another big rash of acquisition opportunities out there," he said.

GE Plans

That contrasts with General Electric Co., which announced yesterday at MINExpo the creation of a new mining unit. The division is preparing to buy more mining-equipment and services companies and should reach $5 billion in sales "within a few years," said Lorenzo Simonelli, CEO of GE Transportation, of which the business will be part.

Oberhelman also said Caterpillar expects to be the "market share leader" in China by 2015 at the latest.

The Caterpillar CEO's comments on growth echo those of Michael Sutherlin, CEO of Milwaukee-based Joy Global Inc., the biggest manufacturer of underground mining machinery. Central- bank actions in China and the U.S. are removing some uncertainty from financial markets and have provided more stability, Sutherlin said in a Sept. 18 telephone interview.

Joy is scheduled to host an analyst presentation today at MINExpo. It may comment on the coal industry and its manufacturing flexibility amid slowing orders, Brian Rayle, a Cleveland-based analyst for Northcoast Research, said in an interview Sept. 18.

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