Caterpillar: Here’s the Real Global Economic Outlook

Prior to Monday’s opening bell, Caterpillar (NYSE:CAT) reported its latest quarterly financial results. Although the company posted its best third quarter sales and profit in history, there was plenty in the report that brings caution for the global economy.

The world’s largest maker of construction and mining equipment said net income came in at $1.7 billion ($2.54 per share) for the third quarter, compared to $1.14 billion ($1.71 per share) a year earlier. Revenue for the three month period increased 4.6 percent to $16.45 billion, compared to $15.72 billion in the same quarter last year. Excluding one-time items, Caterpillar earned $2.26 per share, beating analysts’ estimates of $2.22 per share. However, analysts were expecting revenue of $16.77 billion. Freeport-McMoRan Copper & Gold (NYSE:FCX) also reported lower profits and revenue for the third quarter Monday morning.

With Caterpillar’s line of work and international reach, the company is often viewed as a global bellwether. Looking ahead, Caterpillar is very cautious on the slowdown taking place around the world. The company now expects 2012 sales and revenues to be around $66 billion and earnings in a range between $9 and $9.25 a share. This is down from its previous forecast of $68 billion to $70 billion in sales with a profit of about $9.60 a share. Analysts estimated 2012 sales to come in at $67.6 billion with a profit of $9.40 per share.

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In a press release, Caterpillar explains, “The decline in the sales and revenues outlook reflects global economic conditions that are weaker than we had previously expected. In addition, Cat dealers have lowered order rates well below end-user demand to reduce their inventories. Production across much of the company has been lowered, resulting in temporary shutdowns and layoffs. Lower production will continue until inventories and dealer order rates move back in line with dealer deliveries to end users.”

Next year, Caterpillar expects revenue to be about the same as this year’s, plus or minus 5 percent. This represents the slowest sales growth in four years. “As we’ve moved through the year, we’ve seen continued economic weakening and uncertainty. It’s definitely impacting our business with dealers intending to lower inventories and mining customers delaying some projects and reducing orders,” said Caterpillar CEO Doug Oberhelman. The forecast echoes slowdown fears from other companies such as Norfolk Southern (NYSE:NSC), FedEx (NYSE:FDX) and International Business Machines (NYSE:IBM).

Caterpillar’s revised outlook takes into consideration a 2012 world economic growth rate of 2.5 percent, the weakest since 2009. The current year has been a disappointment with lower than expected growth in the United States, China and Europe. Furthermore, the company essentially says central banks are not doing enough to stimulate growth. “While governments and central banks around the world have been easing policies, it is now evident that these actions have not been sufficient to benefit 2012 growth,” Caterpillar explains.

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