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Cat Fourth Quarter Takes a Hit

Caterpillar Inc. fourth-quarter profit dropped 55 percent under the weight of lower sales of machinery and a write-down for a Chinese mining-equipment company, according to the company. Caterpillar’s stock, however, rose sharply after the report.

For the fourth quarter, Caterpillar reported a profit of $697 million, or $1.04 a share, down from $1.55 billion, or $2.32 a share, a year earlier. Overall revenue, which includes Caterpillar's finance unit, decreased 6.8 percent to $16.08 billion.

Fourth-quarter income was below analysts’ expectations after the company disclosed an $850 million impairment charge on Jan. 18 for ERA Mining Machinery Ltd. Caterpillar attributed the charge to “accounting misconduct” at ERA designed to overstate profitability before Caterpillar acquired the company last June for about $700 million.

Caterpillar offered a tepid outlook for 2013 that includes a wide-ranging profit forecast reflecting the company’s uncertainty about equipment demand in 2013. The company projected profit of $7 a share to $9 on share on revenue of $60 billion to $68 billion. Analysts had expected $8.54 a share on $65.17 billion of revenue.

“We’re encouraged by recent improvements in economic indicators, but remain cautious,” said Chairman and Chief Executive Doug Oberhelman in a statement. “While we expect some improvement in the U.S. economy, growth is expected to be relatively weak.”

Oberhelman added that he expects European economies to continue to struggle this year. Meanwhile, in China, the company expects the economy to improve from 2012 although growth won’t match the rates seen in 2010 and 2011.

The Peoria, Ill.-based company predicted growth in global gross domestic product of 2.5 percent this year, slightly better than the 2.3 percent growth in 2012. Caterpillar predicted that machinery demand is likely to be stronger in the second half of 2013 than in the first half. But the company warned that 2013 “could be a tough year” if economic growth becomes sluggish late in the year as it did in 2012.

Caterpillar said it slashed equipment inventories by $2 billion during the fourth quarter and throttled down production rates to reflect slowing demand. Lower production rates will likely continue through the first quarter until order rates from dealers are aligned with customer demand, the company said.