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Caterpillar pares bullish 2015 view on "anemic" economy

LAS VEGAS (Reuters) - Caterpillar Inc cut its 2015 earnings forecast on Monday, becoming the latest heavyweight in Corporate America to sound alarms on the sluggish global economic recovery.

The world's largest maker of earth-moving equipment stopped short of forecasting a global recession, but warned of a bigger-than-expected fall-off in demand for its products over the next few years because of weaker commodity prices.

The deceleration will undermine Caterpillar's expansion in the mining sector, where demand for the company's mega trucks is expected to slow. Equipment sales in Australia and China may also decline.

"We've seen a slowing in economic growth more than we expected," Caterpillar CEO Doug Oberhelman told analysts and reporters in Las Vegas. "We expect fairly anemic and modest growth through 2015."

Oberhelman reduced the earnings forecast for 2015 to $12 to $18 per share, from $15 to $20 per share previously.

The outlook cut was reported minutes before U.S. stock exchanges closed, weighing on the Dow Jones industrial average. In after-hours trading, Caterpillar shares fell more than 2.4 percent to $88.73.

The new forecast comes a year after Caterpillar paid $7.6 billion for mining equipment maker Bucyrus International - the largest deal in its history - and bullishly predicted the deal would help boost earnings to as much as $20 per share by 2015.

Large companies tend not to issue earnings forecasts for so many years into the future. Caterpillar did so partly to reassure those on Wall Street who questioned the timing of the Bucyrus deal while the economy remained weak.

"It's prudent, especially with what's happened in 2011 and 2012 in the economy, to readjust," Oberhelman said on Monday. "I, for one, am still thinking $15 to $20 (earnings per share by 2015), but we need better economic growth."

Oberhelman stressed he stands by the Bucyrus deal.

"I don't regret it," he told Reuters in an interview. "And I don't think we could have got it cheaper today than what we paid."

The Bucyrus deal added mining shovels and drag lines to Caterpillar's stable of trucks and excavators, making it the world's largest producer of mining equipment.

Caterpillar will discuss 2013 expectations when it releases quarterly earnings next month, Oberhelman said. For 2012, analysts expect the company to earn $9.62 per share, according to Thomson Reuters I/B/E/S.

Caterpillar is considered a key barometer for manufacturing, mining and construction sector health. The company's decision to cut its 2015 forecast shows much work remains to heal those parts of the economy.

Railroad operator Norfolk Southern and shippers FedEx Corp and UPS Inc are among the many large U.S. companies that have blamed slowing demand around the world for their weaker financial results or forecasts.

MINERS CUT SPENDING

In a sign of how seriously Caterpillar takes its investment in the mining sector, all 16 members of the company's board of directors flew to Las Vegas this week for MINExpo, a global convention for mining suppliers that takes place every four years.

Prices for coal and iron ore have dropped more than 20 percent this year, causing many customers to rethink capital expenditures. Since roughly 70 percent of spending in mines is for large trucks, capital spending cuts are not good news for Caterpillar and peers that include Komatsu .

Among the world's eight largest miners, only three are boosting spending next year. Vale , which has the largest budget among miners, plans to cut its 2013 mining spending by 4 percent from 2012 levels.

Given the uncertainty in the mining market, Caterpillar's forecast cut was not a complete surprise to Wall Street, where expectations had been low ahead of Monday's event.

Still, many analysts remain bullish on Caterpillar, with price targets above $100 per share and hopes for the company to continue to provide the large equipment needed when a global economic recovery occurs.

The forecast cut is "a realistic reflection of the slowdown in the global economy," said Oliver Pursche of the GMG Defensive Beta Fund, which owns Caterpillar shares. "We're not overly surprised by the announcement.

"Certainly in the short term there are some headwinds, but long term ... we're still bullish on Caterpillar," Pursche said.

DIGGING INTO CHINA, AUSTRALIA

Oberhelman, who joined the Peoria, Illinois-based company right out of college in 1975 and has had the top job since 2010, said Caterpillar remains committed to China despite slowing growth there.

"By 2015, at the latest, we will be the market share leader in China for all of our construction equipment," he said. "This little slowdown allows the industry to consolidate, and we intend to be there when it recovers and win there."

Excavator sales are down roughly 40 percent in China so far this year, though, and are expected to improve only slightly next year, according to data from U.K.-based consultant Off-Highway Research.

Caterpillar began exporting Chinese-made machinery earlier this summer to the Middle East and Africa, part of a plan to offset a dip in China's economic growth.

In Australia, BHP Billiton and other miners have delayed expansion of mining projects and buying equipment.

Caterpillar acknowledged the slowdown there, but said it expects only a temporary blip and for sales to resume next year.

"We are seeing some delays" in Australia, Steve Dunning, the Caterpillar executive who oversees the mining business, said at the analyst presentation. "Some of our customers are pushing orders out six months, nine months. But we're talking in terms of months, not any longer than that."

(Additional reporting by Nick Zieminski in New York; Editing by Mary Milliken and Ryan Woo)

Source: http://news.yahoo.com/caterpillar-cuts-2015-forecast-growth-slows-005956007--finance.html

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