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Caterpillar profit drops as it braces for slowdown

The US construction equipment group Caterpillar posted a 15-percent rise in 2012 net profit
The US construction equipment group Caterpillar posted a 15-percent rise in 2012 net profit, but that was below market expectations owing in large part to a charge of $580 million that arose from accounting fraud at the group's new Chinese unit Siwei.

Caterpillar on Monday reported a 55 percent drop in fourth-quarter profit from a year ago, hit by a big charge on a Chinese acquisition after accounting fraud was found.

The US construction and mining equipment giant, considered a bellwether of the global economy, said earnings were also hit by steps it took to slow production and cut inventories by $2 billion to adjust to tough global market conditions.

Caterpillar reported fourth-quarter net profit of $697 million compared with $1.5 billion in the year-earlier period.

Revenue fell 6.8 percent from 2012 to $16.07 billion.

As previously announced, Caterpillar took a $580 million writedown on Siwei, a Chinese mining company it acquired last year and subsequently discovered accounting fraud at the unit.

Offsetting in part the China writedown and other negative hits to quarterly profit, the company posted a $300 million one-time gain related to a tax issue.

Excluding special items, earnings per share came in at $1.46. Analysts had forecast $1.70.

"Considering the weak economy in the United States, along with much of Europe in recession and China slowing, we had a solid year," said chief executive Doug Oberhelman.

"Our incremental profit pull-through was very good, we made progress adjusting inventory levels and our quality and safety indicators continued to improve."

Credit Suisse in a note called Caterpillar's move to reduce inventory "key as inventory has been a huge overhang on the stock."

Caterpillar shares were up 1.2 percent in mid-morning trading.

Caterpillar said it was taking steps to prepare for an uncertain market in 2013.

The Peoria, Illinois-based company forecast this year's revenue in the range of $60-68 billion and profit per share of $7-$9.

"The range of our 2013 outlook reflects the level of uncertainty we see in the world today," said Oberhelman. "We're encouraged by recent improvements in economic indicators, but remain cautious."

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