The company expects the negative profit trend to continue, downgrading its profit expectations for the rest of 2013.
The company’s shares shed 2.43% to close the day at $83.44. The bad news also led to the New York Stock Exchange taking a tumble.
Caterpillar’s second-quarter sales and revenues of $14.6 billion were down 16% on the second quarter of 2012.
About half of the decline in sales and revenues was a result of changes in dealer inventory.
Machine dealer deliveries to customers also declined, particularly in the resources sector.
Caterpillar chairman and CEO Doug Oberhelman tried to put a positive spin on the results, saying he was pleased with the way his team had performed.
He pointed to the currency translation and hedging losses, an additional $1 billion of dealer machine inventory reductions and a decline of $1.2 billion in Caterpillar’s own inventory as the drivers for the profit slump.
“While these were significantly negative to profit in the second quarter, our outlook doesn’t reflect additional currency losses or reductions in our inventory during the second half of 2013,” Oberhelman said.
“As a result, we expect profit to improve in the second half of the year.”
However, Caterpillar is still predicting a smaller than expected profit for 2013 overall.
The company had forecast a profit per share of about $7 at the middle of the sales and revenues outlook range. That looks more like being $6.50 a share at the middle of the sales and revenue outlook range.
‘The $1 billion reduction in dealer machine inventory was more than we previously expected and was negative to our sales and profit in the quarter,” Oberhelman said.
“While dealer machine inventory is low by historic standards, dealers are utilizing inventory from our product distribution centers and we are positioned to reduce inventory even further.
“As a result, we expect dealer machine inventory to decline about $1.5bn to $2bn in the second half of 2013 and end the year about $3.5bn lower than year-end 2012.
“That means we are underselling end-user demand this year and it sets us up for better sales in 2014.”
Oberhelman said the company had taken action to “aggressively” lower costs and that end-user demand for Cat machines was outpacing the industry overall.
“Overall end-user demand is similar to our previous outlook, but we now expect a more significant reduction in dealer machine inventory,” he said.
“That’s the main reason for the reduction in the sales and revenues outlook.
“With the sharp reduction in dealer inventory and the decline in mining, 2013 is turning out to be a tough year and we’ve already taken action to reduce costs.
“During the first half of the year we’ve had temporary factory shutdowns, rolling layoffs throughout much of the company, reductions in our flexible workforce and we’ve reduced discretionary and program costs.
“While we’ve taken significant action already, we will be taking additional cost reduction measures in the second half of 2013.”
