By Meredith Davis
CHICAGO (Reuters) - Caterpillar Inc (N:CAT) on Thursday forecast a drop in 2016 sales and profit as the outlook for global mining, drilling and construction activity remained bleak, and posted lower third-quarter earnings.
The world's largest construction and mining company, which last month announced a major restructuring, said slower Chinese economic growth and Brazil's recession dented company revenues as sales in all three of its major business segments fell.
While Caterpillar expects China to be the world's largest construction market and is positive on opportunities there, it said its construction business is down.
"It is going to grow, we have to be there," Caterpillar's Chief Financial Officer Brad Halverson said. "But China is soft and we don't see any big recovery in it next year."
Despite weaker profits and a slashed outlook, Caterpillar shares rallied after its report was largely consistent with last month's warning and restructuring announcement.
The stock rose 3 percent to $70.91.
"I think that our outlook for 2015 and our sales guidance for 2016 was pretty much in line with what the market expected. There weren't any big surprises, and I think the market took some comfort in that," said Mike DeWalt, vice president of finance at Caterpillar.
Caterpillar cut its full-year 2015 earnings per share to $3.70 from a previous outlook of $4.70. Excluding restructuring costs, it cut its 2015 EPS forecast to $4.60 from $5.00.
It forecast a 5 percent fall in sales in 2016, which would be its fourth straight year of decline.
"All in, despite the anticipated $750 million in restructuring savings, operating earnings are expected to be down year over year," Ann Duignan, analyst at J.P. Morgan said in a research note.
While mining remained weak globally, the company's interest in the cyclical industry has not declined. However, it has looked to boost its rail business and recently acquired a railroad and locomotive engine parts manufacturers.
"Replacement activity in mining equipment remains very weak, though machine utilization rates have started to improve," Duignan added.
For the third quarter, net income slid to $368 million, or 62 cents per share, from $1.02 billion, or $1.63 per share a year earlier.
Earnings per share, excluding restructuring costs, were 75 cents, compared with $1.72 a year earlier. Analysts expected earnings of 78 cents a share.
Quarterly revenue fell to $11 billion from about $13.5 billion a year earlier. Analysts expected $11.25 billion.
Amid weakness in the industries where it operates, the company said it had too much capacity, adding that capital expenditure in 2016 would be less than half of 2012 levels.
The company is looking for full-year 2015 revenue of about $48 billion, in line with its revised forecast in September, when it said it would slash 10,000 job cuts through 2018 and close facilities worldwide.
Analysts had estimated full-year 2015 revenue at $47.79 billion.
On Thursday it estimated 2015 restructuring costs of $800 million, up from a previous forecast $250 million.
The company said its construction business was hurt by weak economies in the Asia/Pacific region and the former Soviet Union as well as political unrest and low oil prices in the Middle East.
Weakness in Latin America was pronounced in Brazil, where construction equipment sales fell 60 percent from 2014 levels, it said. It sees the country's recession continuing into 2016.
Halverson said Caterpillar will follow up with a full profit outlook in January.