Analysis: Caterpillar cries “uncle” on mining; investors cry “buy” – by James B. Kelleher (Reuters U.S. – April 22, 2013)

CHICAGO – (Reuters) – An odd thing happened on Monday when Caterpillar Inc (CAT.N), the world’s largest maker of earth-moving equipment, posted disappointing profits and cut its full-year forecast, blaming weakness in the mining industry it bet on so heavily in recent years.

Its shares rallied. When other big U.S. companies, including General Electric (GE.N), International Business Machines Corp (IBM.N) and Textron Inc (TXT.N), have warned of slowing profit growth in recent days, the news has unnerved investors and sent their stock prices lower.

So what was different about Caterpillar? Part of the answer, analysts said, was that its announcement was not a surprise. The company has warned repeatedly in recent months that demand from mining customers was deteriorating.

Another factor was Caterpillar’s upbeat assessment of the outlook for the construction industry, especially in the United States and China. And a share buyback always helps – this one to the tune of $1 billion in stock this year and as much as $3.8 billion by the end of 2015.

But analysts said the overly bleak assessment Caterpillar provided on Monday for its sales to the global mining industry also, ironically, helped the shares. In a nutshell, no one believes it’s really going to be quite as bad as it says, even given the recent slide in gold and copper prices on concerns about weak global growth.

Rob Wertheimer, an analyst at Vertical Research partners, said the new outlook for mining implies a downturn that would put the mining industry demand back near 2009 levels, where it bottomed out in the last downturn.

“We obviously didn’t expect that level of collapse in an otherwise mostly recovering global economy,” Wertheimer said.

Neither does Caterpillar.

The company is, after all, predicting the world economy is going to grow modestly enough to fuel demand for industrial commodities that miners wrest from the ground using Caterpillar’s yellow machines.

“It’s not a great economic climate, but it is good enough to keep commodity production going,” said Mike DeWalt, Caterpillar’s corporate controller.

In fact, Doug Oberhelman, Caterpillar’s chief executive and chairman, said on Monday the current drop-off in mining orders was as much a function of the changing focus of its mining customers as it was a function of concerns about global growth.

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