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Caterpillar offers cautious outlook after punishing quarter; shares drop

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* Q2 profit down 70% y/y, revenue down 31% y/y

* Sees no improvement in Q3 sales and profit from Q2

* Does not reinstate full-year earnings guidance

* Share repurchases to remain suspended this year (Adds CEO's quote, details from earnings call, updates share price) By Rajesh Kumar Singh CHICAGO, July 31 (Reuters) - Caterpillar Inc on Friday predicted no improvement in equipment sales, an outlook that sent its shares down after second-quarter earnings sank during a crippling recession sparked by the coronavirus pandemic, which made customers wary of big purchases. The heavy equipment maker, a bellwether for economic activity, reported a 23% drop in retail sales in the second quarter and predicted a similar decline in the quarter through September. Caterpillar's outlook was bleaker than other industrial companies that have predicted the lifting of pandemic shutdowns will improve sales and its shares were last down 4.1% at $131.12.

Profits in the current quarter are not forecast to improve from the last three months. Stephen Volkmann, equity analyst with Jefferies, said Caterpillar's outlook was an "outlier." "Either they are being a little bit conservative or they have some visibility," he said. The manufacturer said global economic uncertainty would continue to weigh on its results. It declined to reinstate full-year earnings guidance, withdrawn in late March. Share repurchases will also remain suspended this year. Caterpillar's earnings came a day after the U.S. economy reported its deepest contraction since the Great Depression.

The world's largest economy shrank at a 32.9% annualized rate last quarter with a 37.7% plunge in spending on equipment, and a resurgence in new coronavirus cases has dimmed the outlook for the current quarter. The international outlook also remained grim, with the International Monetary Fund predicting deeper contraction in global output this year. Reflecting weak equipment demand, Caterpillar raised its estimates for reduction in dealer inventories to more than $2 billion this year from $1.5 billion estimated earlier.

"It's a very fluid dynamic situation," Chief Executive Officer Jim Umpleby said on an earnings call. In response, it has cut production and is keeping a lid on costs. It is prioritizing investment in services business, which is expected to hold up better than equipment revenue in the downturn. Revenue in the latest quarter was down an annual 31% with a double-digit decline in equipment sales across all regions. Cost cuts cushioned the hit on profit, which came in at 84 cents per share, down 70% year-on-year.

(Additional reporting by Rachit Vats; Editing by Marguerita Choy, David Evans and David Gregorio) Reuters Messaging: rajeshkumar.singh.thomsonreuters.com@reuters.net))

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