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Caterpillar 4Q profits cut in half; 2013 uncertain

The Caterpillar logo is seen heavy earth-moving equipment.   |  File photo

The Caterpillar logo is seen on heavy earth-moving equipment. | File photo

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Updated: March 1, 2013 7:30PM



Caterpillar Inc.’s Chairman and CEO said accounting misconduct at a China subsidiary that caused it to take a $580 million charge in the fourth quarter will not prompt the Peoria-based company to alter its strategy in the market, and he took the blame for making the acquisition.

Caterpillar also said Monday it expects the housing industry to help the U.S. economy this year and forecast world economic growth of at least 2.5 percent.

The outlook came as the company reported a 55 percent drop in fourth-quarter income, but beat Wall Street expectations.

The construction- and mining equipment-making giant reported record sales and profit per share for the year. Those results came even as it took the previously disclosed $580 million charge. That charge was related to improprieties at recently acquired China-based ERA Mining Machinery Limited and Caterpillar’s wholly-owned China subsidiary, Siwei Mechanical & Electrical manufacturing company, known as Siwei.

An internal company investigation uncovered, “deliberate, multi-year coordinated accounting misconduct at Siwei … by several senior managers . . . for the purpose of inflating sales, understating costs and over reporting profit, and it included fabricated documentation designed to cover their tracks,” Caterpillar Chairman and Chief Executive Officer Doug Oberhelman said during an analyst conference call.

“The buck stops at my desk,” he said regarding the purchase. “Our strategy in China has centered around bringing our products, services, support capability, manufacturing scale, supplier development, procurement, product development and distribution to China for the long term. That will continue. The impairment at Siwei doesn’t change that.”

China, one of the fastest growing large economies in the world, is already the world’s largest market for construction equipment and has a large mining industry, making it an important market now and even more so in the future, he said.

Looking at the U.S. economy, Caterpillar is forecasting U.S. economic growth of 2.5 percent, matching its global economic growth forecast.

“I think the key phrase here when we talk about the world economies in 2013 is a bit better, but still weak,” Controller Mike DeWalt said on the call. “In the United States, we’re becoming increasingly optimistic. The Feds’ interest rate policies and their plan to continue injecting liquidity are in our view positive for 2013 growth.”

The company expects Europe to continue to struggle under fiscal austerity measures and for construction activity there to decline.

The company said it expects the Chinese economy to grow 8.5 percent this year, helped by Chinese government action last year accelerating credit growth and infrastructure spending.

Caterpillar earned $697 million in the fourth quarter, down from $1.55 billion. Earnings per share were $1.04 per share, down from $2.32. Profit was hurt by a $2 billion decline in inventory as Caterpillar scaled back production.

Sales fell 7 percent to $16.08 billion as production and inventory were reduced. Construction Industries sales fell 25 percent. Power Systems’ sales fell 9 percent.

For the full-year profit was $5.7 billion, up 15 percent from $4.92 billion, or $8.48 per share, up from $7.40 per share. Sales rose 10 percent to $65.9 billion.

Caterpillar forecast 2013 sales in the range of $60 billion to $68 billion and profit per share of $7 to $9 with production reductions continuing in the first quarter.

It said it expects the first half of 2013 will be weaker than the first half of 2012, with better growth in the second half of the year.



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