AP Business Writer
MINNEAPOLIS (AP) -- A slowdown in the mining business is digging a hole in Caterpillar's profits.
First-quarter profit shrank 45 percent and Caterpillar has lowered its expectations for full-year sales and profit because its mining business is slowing. Sales of Caterpillar-branded mining machines such as large trucks and bulldozers will drop by half this year, the company said on Monday.
Caterpillar, based in Peoria, Ill., said mining customers placed big orders for equipment last year, but then mining profits fell, so now those customers are cutting back. Dealers who would normally be stocking up on Caterpillar gear to get ready for a busy summer instead cut inventory during the first quarter.
Executives said they had hoped that a slowdown in orders from dealers in late 2012 would turn around this year. "Unfortunately, that hasn't happened," said Mike DeWalt, the company's controller, on a conference call. "Overall mining orders have remained depressed."
Profit margins are higher for mining gear than for many of Caterpillar's other products, making the slowdown more painful to the company's bottom line.
"We're definitely in a down-cycle right now, but long-term it's a great business for us," said Chairman and CEO Doug Oberhelman.
Caterpillar has already started cutting costs. On April 5 it said that it would lay off more than 460 employees at a mining truck plant in Decatur, Ill. Caterpillar also announced mining-related layoffs in Milwaukee and plans to cut 1,300 of 3,400 jobs at a plant near Brussels that makes excavators, loading vehicles and engine parts. This year's capital spending -- which covers big-ticket items like factories and computer systems -- will fall below $3 billion, from $3.4 billion last year.
Caterpillar employed 141,000 people at the end of the quarter, down 7 percent from a year earlier. The job cuts included about 1,000 U.S. workers and almost 7,000 in other countries. Besides the permanent layoffs, it has also been putting production and office workers on temporary furloughs.
Caterpillar's net income dropped to $882 million, or $1.31 per share, for the latest quarter. Revenue fell 17 percent to $13.21 billion from $15.98 billion a year ago. Both missed analyst expectations. Analysts surveyed by FactSet were expecting a profit of $1.36 per share on revenue of $13.79 billion.
Profits fell in each of its big divisions. Operating profit fell 59 percent to $477 million in resource industries, which includes mining. It was down 61 percent to $239 million for construction equipment, and down 26 percent to $598 million in power systems, which makes items including large electrical generators and locomotive engines.
It also cut its 2013 guidance. Caterpillar now expects to earn $7 per share, down from $7 to $9 previously. It forecast revenue of $57 billion to $61 billion, down from $60 billion to $68 billion. Analysts had been expecting 2013 profit of $7.67 per share on revenue of $62.48 billion.
The reduced outlook wasn't entirely unexpected and Oberhelman did note some bright spots. Sales in China rose compared to a year ago. And the company is "becoming more optimistic" on the U.S. housing sector.
Caterpillar also announced that it plans to buy back shares -- about $1 billion worth -- for the first time since 2008, following an 11 percent drop in the price this year. That helped Caterpillar shares rise on Monday. They gained $2.28, or 2.8 percent, to close at $82.71.
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