Caterpillar sees global economy worsen across 2012

Caterpillar lowering production levels in face of reduced demand

Cat is lowering its global production due to reduced customer demand.
Cat is lowering its global production due to reduced customer demand.

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Caterpillar, the largest manufacturer of construction and mining equipment in the world, has lowered its sales outlook for 2012 and 2013, adding to fears that the global economy is worsening.

The company announced record profit in Q3, but smaller than expected revenue. Bright spots included sales of construction equipment in North America and sales of mining equipment in Asia Pacific. Sales in the Middle East, Africa and CIS were "moderately higher", while drops were recorded in China and in Europe.

"The decline in the sales and revenues outlook reflects global economic conditions that are weaker than we had previously expected," said CEO and chairman Doug Oberhelman.

"As we've moved through the year, we've seen continued economic weakening and uncertainty."

Production across much of the company has been lowered, resulting in temporary shutdowns and layoffs, said Oberhelman.

Two factors have hit Caterpillar sales: weak end-user demand, and moves by its dealer network to lower its total inventory levels.

In a conference call to discuss the quarter three results, Caterpillar's top executives said that customer demand is not growing as fast as expected, and that the same conditions were prevalent  across construction, mining, and power systems, and in all sales regions.

Blaming improvements in delivery times as well as reduced customer demand, investor relations director Mike DeWalt said that dealers are finding themselves with too much inventory.

"In response, they’ve cut order rates to levels that are well below what they’re selling to end customers. As a result, in the fourth quarter we’ll be reducing production levels quite a bit.

"We’ve already announced a number of temporary plant shutdowns and there’ll be more coming. It means that for the next quarter and into 2013 our production will be below end-user demand."

China is also a major factor, where the company has 16 production factories, and nine new plants under production.

Sales in the largest construction equipment market in the world remain weak, said DeWalt, though the company is hoping that sales will pick up next year from mid-February, after the Chinese leadership transition in November which is expected to result in a number of projects being released.
  

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