Caterpillar says China charge will dent 4Q results

China charge, tepid growth in the global economy to weigh on Caterpillar's 4Q results

Associated Press

PEORIA, Ill. (AP) -- Caterpillar is stuck in some mud right now.

The big construction gear maker said last week that it found "deliberate, multi-year, coordinated accounting misconduct" at a China-based maker of roof supports for mines that it acquired in June. It said it will write down the value of the investment as a result and that will show up in its in fourth-quarter results being reported on Monday.

In addition, the company has warned that it doesn't expect the global economy to pick up until the second half of 2013. Mining companies, big customers for Caterpillar, have said they'll scale back their spending this year. Lower prices for metals and coal, along with higher operating costs, have hurt profit margins at many mining companies.

Analysts are forecasting lower earnings and revenue for Caterpillar compared with a year ago.

WHAT TO WATCH FOR: Caterpillar already offered some details of the problem in China and said it dismissed "several senior managers" at Zhengzhou Siwei, based in Zhengzhou, China. Investors will want to know where Caterpillar's China mining prospects stand considering that it apparently wildly overpaid for Siwei. The company said it will write down the value of the investment by $580 million, or 87 cents per share.

On Friday, Caterpillar said December sales of its construction machines fell 1 percent, including a 7 percent drop in Asia and a 6 percent drop in North America. Sales of power generators fell 2 percent.

WHY IT MATTERS: Caterpillar's results are watched closely because they are considered an indicator of industrial activity and the health of the overall economy.

At an investor conference in November, Caterpillar's director of investor relations Michael DeWalt said the company is expecting the U.S. economy to grow about 2 percent this year, with improvement also expected in Brazil and China.

Caterpillar has said it's still committed to its China business, and that the Siwei deal is "aligned with Caterpillar's strategy to expand in the rapidly growing Chinese coal mining equipment industry."

BMO Capital Markets analyst Joel Tiss wrote on Tuesday that "while Caterpillar is a huge company and the actual size of the write off is basically immaterial, we believe the trend of aggressively chasing mining assets" and paying high prices for them in what may be the late stages of a long-term recovery could suggest an inability to spend its money effectively.

WHAT'S EXPECTED: Analysts surveyed by FactSet are expecting earnings of $1.70 per share for the fourth quarter on revenue of $15.96 billion. The estimate doesn't include the Siwei write-down.

Caterpillar has also said it will provide 2013 guidance on Monday.

LAST YEAR'S QUARTER: Caterpillar earned $2.32 per share on revenue of $17.24 billion.

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