Caterpillar keeps on digging its credibility gap

Caterpillar keeps digging deeper its credibility gap with investors. The $46 billion earth-moving giant warned that full-year sales and profit would be lower than originally forecast, and reported a big slump in quarterly income. It's the latest in a series of stumbles — including buying into mining at its peak and splurging on buybacks when its stock price was high — that suggest Chief Executive Doug Oberhelman isn't a great judge of his own business cycle. The timing of the profit warning is embarrassing. Just last month, the world's biggest maker of excavators used in construction and mining gave its first quarterly guidance in company history, saying analysts' hopes for the three months ended in March were too high. Yet Caterpillar kept its full-year forecast intact. On Friday it backtracked on that, blaming weak sales and rising restructuring costs as it cut its full-year profit guidance by 14 percent. First-quarter earnings of 67 cents a share before restructuring charges missed analysts' consensus forecast by a penny. More from Breakingviews : Google's app store grows into risky opportunity It's not the first time Caterpillar has proved an unreliable judge of business conditions. A recent analysis by CNBC found the company spent nearly $15 billion buying back its own stock over the last decade, a period when frothy commodity prices had pushed up the value of its shares. Despite a 34 percent rally since late January, Caterpillar's stock price is still more than 30 percent off its high-water mark amid slower growth in China and a slump in demand for raw materials that has hit sales in the company's key markets. Additionally, in 2011 Caterpillar paid $7.6 billion for steam-shovel maker Bucyrus, plunging deep into the mining business just as the near-decade-long boom in raw materials was cresting. Commodities and construction are cyclical businesses and Caterpillar isn't the first equipment supplier to misjudge the ups and downs of the market. But Caterpillar's shares have badly underperformed the broader S & P 500 in the five years or so since the Bucyrus deal closed. They fell only slightly after Friday's warning, implying investors have already priced in the company's credibility deficit. If Oberhelman can't find a way to fill it soon, Caterpillar may find itself vulnerable to a shakeup from restive shareholders. For more independent commentary and analysisfrom Reuters Breakingviews, visit breakingviews.com

A worker operates a Caterpillar Inc. hydraulic excavator during the final stage of construction on the Tunnel Rio 450 project in Rio de Janeiro, Brazil.

Dado Galdieri | Bloomberg | Getty Images

Caterpillar keeps digging deeper its credibility gap with investors. The $46 billion earth-moving giant warned that full-year sales and profit would be lower than originally forecast, and reported a big slump in quarterly income. It's the latest in a series of stumbles — including buying into mining at its peak and splurging on buybacks when its stock price was high — that suggest Chief Executive Doug Oberhelman isn't a great judge of his own business cycle.