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Caterpillar sees weak economy as it cuts outlook

Associated Press Modified: October 22, 2012 at 4:15 pm •  Published: October 22, 2012
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MINNEAPOLIS (AP) — Caterpillar says the world's economy is weaker than it thought, and it doesn't expect growth to pick up until the second half of next year.

The company on Monday cut its 2012 revenue and profit guidance, and took a very cautious view toward its performance in 2013.

Caterpillar makes the yellow-painted excavators, heavy tractors, and other construction equipment often seen on road-building projects. It's the world's largest maker of construction and mining equipment, and also makes engines. Its results are watched closely for signs of where the broader economy is headed.

Where it's headed right now is for some weak growth, based on what Caterpillar was saying on Monday.

It predicted worldwide economic growth of 2.7 percent for next year, up from the 2.5 percent growth it expects for 2012. It expects the cheap lending offered in most countries to continue next year, although "growth has been slow to respond," the company said.

"As a result, we are not expecting improvement in overall economic growth until the second half of 2013," the company said.

Caterpillar sells to dealers, who turn around and sell to end users like construction and mining companies. Those dealers are trying to cut inventory, so they're ordering less equipment than customers are buying.

In response, Caterpillar said it has reduced production, resulting in temporary shutdowns and layoffs. Lower production will continue until dealer demand lines up with end user demand, Caterpillar said.

The layoffs will generally be short-term, such as a factory shutting down for a week, the company's chief financial officer, Ed Rapp, said in an interview.

"We haven't seen the broad-based economic growth that we really anticipated in 2012," he said.

As a result, Caterpillar cut its 2012 outlook for the second time this year. Revenue is expected to grow 9.7 percent to $66 billion, after rising 41 percent in 2011. Profit is now forecast at $9 to $9.25 per share, down from a previous forecast of $9.60 per share.

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