Revenues were $16.5 billion, up 5% year over year, and earnings were $2.54 per share, up 49% year over year, in the third quarter. Earnings benefited from a $273 million pre-tax gain related to the sale of Caterpillar's majority stake in its third party logistics business.

The company has lowered its guidance for the full-year 2012 revenues from $68-$70 billion to $66 billion and earnings per share from $9.60 to $9.00-$9.25. This downward revision in outlook was driven by declining mining activity worldwide and a decline in purchases made by Caterpillar's dealers in an attempt to reduce inventory levels. 

Growth in Q3 driven by higher sales in North America and Asia Pacific region

Revenues increased 5% year over year, or $729 million, in the third quarter. This increase was driven by a combination of higher sales volume and better price realization, partially offset by the unfavorable impact of currency conversion. Geographically, sales increased 9% in North America and 8% in Asia-Pacific. Sales were marginally higher in the Middle East and Africa, while they were flat in Latin America and declined in Europe.

Segment-wise, sales were up 13% in Caterpillar's mining business, 5% in its power systems business, and about flat in its construction business.

However, going forward, the company anticipates sales in its mining business to be impacted from the declining mining activity worldwide. The sluggish global economic growth has kept prices of metals and coal suppressed for most of 2012. And prices are not expected to improve much in the fourth quarter or 2013 as Europe continues to battle recession, growth remains weak in other developed economies, and is expected to only marginally improve in emerging economies.

Lower prices of metals and coal have increased the pressure on margins of mining companies, prompting them to reduce investments. Australian iron-ore producer Fortescue Metals Group (FMG) recently cut its full-year capital expenditure by 26% to $4.6 billion. BHP Billiton, the world's largest mining company, has delayed projects worth $68 billion, and Vale (VALE) plans to cut its spending by 4% in 2013. This will impact the sales of mining equipment and machinery manufactured by Caterpillar over the coming months. The mining business constitutes nearly 42% of the total company value.

In addition, Caterpillar has indicated that the purchases made by its dealers have declined below their end-user purchase levels. This is likely an attempt by the dealers to lower inventories in view of the weak global economic environment. This will also impact Caterpillar's earnings in the fourth quarter and beyond. As a result, the company has lowered its earnings forecast for the full-year 2012.

Finally, due to the nature of Caterpillar's business that encompasses mining, construction and other basic industries, its earnings growth rate is closely linked to the global economic growth rate. And, until the growth of the latter doesn't pick up, Caterpillar will continue to post moderate growth.

We currently have a stock price estimate of $95, approximately 10% above its current market price.