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Bloody day for Caterpillar

Global industrial equipment manufacturer Caterpillar (NYSE:CAT) fell to a fresh 12-month low Tuesday after its full-year profit guidance showed the intensifying trade war put a blight on optimistic earnings growth prospects.
Bloody day for Caterpillar Bloody day for Caterpillar Bloody day for Caterpillar Bloody day for Caterpillar Bloody day for Caterpillar

The Deerfield, Illinois-based company said the ongoing trade war between Beijing and Washington had pushed up steel and aluminum prices and prompted retaliatory action from trading partners. This resulted in US$40 million in extra costs for materials during the September quarter, and prompted market concerns over the company's potential for further profit growth, as rising manufacturing costs offset profit.

The company tried to waylay market fears and said the additional costs were more than offset by higher prices for its products and cost cutting initiatives during the period. It expected the impact of recently imposed tariffs would be at the low end of the range of $100-$200 million.

However, 1-4% price increases would be passed on to customers starting January.

"Manufacturing costs were higher due to increased material and freight costs. Material costs were higher," the company said.

Considered a bellwether for global economic growth, Caterpillar in fact beat analyst estimates on a quarterly basis during the most recent period for the tenth consecutive time. Adjusted profit, which typically excludes one-off expenditures, rose 47% in the period to $2.86 a share, beating Wall Street analyst estimates calling for earnings of $2.85 a share.

Net profit for the September quarter came in at $2.88 a share.

"This was the best third-quarter profit per share in our company's history," said CEO Jim Umpleby.

Caterpillar recorded 18% year-on-year revenue growth to $13.5 billion, which was comfortably ahead of market estimates.

Sales in Caterpillar's three main business divisions construction, resource industries and energy & transportation all saw strong growth, adding 16%, 35% and 15% year-on-year, respectively.

The market's misgivings saw Caterpillar fall as much as 10.17% Tuesday to a new 12-month low of $128.71 a share, which was some ways removed from the 12-month top of $173.24. The company has a current market value of $70.71 billion.