By Ernest Scheyder
(Reuters) - Caterpillar Inc, the world's largest maker of construction equipment, posted a 55 percent drop in quarterly profit on Monday due to a charge connected with accounting fraud at a Chinese subsidiary and weak demand among its dealers.
Caterpillar's bulldozers, tractors and other machines have been accumulating in warehouses due to slowing economies in China, Europe and the United States.
The company said it was able to sell off some of this glut in the fourth quarter, reducing the value of its inventory from the third quarter by $2 billion. Inventory levels, however, remain $1 billion above year-ago levels, and executives expect 2013 to be a "tough year."
Caterpillar said earlier this month it discovered accounting fraud at a Chinese coal mining supplier it bought in 2012. Caterpillar wrote down most of the $650 million deal, zapping fourth-quarter results by 87 cents per share.
"We're encouraged by recent improvements in economic indicators, but remain cautious," Caterpillar Chief Executive Doug Oberhelman said in a statement on Monday.
For the fourth quarter, the company posted net income of $697 million, or $1.04 per share, compared with $1.55 billion, or $2.32 per share, in the year-ago quarter.
Revenue fell 7 percent to $16.08 billion. Analysts expected revenue of $16.12 billion, according to Thomson Reuters I/B/E/S.
Caterpillar expects to earn $7 to $9 per share in 2013, below the $9.12 per share analysts expect.
Caterpillar closed the purchase of ERA Mining Machinery Ltd and its subsidiary Siwei, China's fourth-largest maker of hydraulic coal mine roof supports, last June, paying $653.4 million (HK$5.06 billion).
After the deal closed, Caterpillar found that physical inventory did not match accounting statements, a discovery that led to the charge.
Caterpillar does not expect the fraud to harm its 2013 profit, but it will hinder the company's expansion into China, the world's largest coal producer.
Emory Williams, the chairman of ERA when the Caterpillar deal closed, ended days of silence on Monday, saying in a statement he was "dismayed" by the accounting charge Caterpillar was taking.
Williams said nothing about the accusation of accounting misconduct in his statement.
(Reporting By Ernest Scheyder; Editing by Maureen Bavdek)
(c) Copyright Thomson Reuters 2013. Check for restrictions at: http://about.reuters.com/fulllegal.asp