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Caterpillar's shares tumble on disappointing profit outlook

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By Reuters
Caterpillar's shares tumble on disappointing profit outlook
FILE PHOTO: Caterpillar machines are seen at Lianyungang port in Jiangsu province, China, January 21, 2018. Picture taken January 21, 2018. REUTERS/Stringer/File Photo   -   Copyright  China Stringer Network(Reuters)

By Rajesh Kumar Singh

CHICAGO (Reuters) – Caterpillar Inc <CAT.N> disappointed investors on Tuesday by not raising its 2018 earnings forecast yet again, raising fears that the heavy-duty equipment maker may be signalling a slowdown despite posting better-than-expected quarterly profits.

The stock tumbled 7.8 percent after the opening bell on Wall Street, weighing on the overall U.S. stock market. The Dow Jones Industrial Average <.DJI>, which includes Caterpillar, was down more than 400 in the first few minutes of trading on Tuesday.

The company kept unchanged the 2018 adjusted profit per share outlook of $11.00 to $12.00 per share, which did not go down well with investors who were expecting yet another upward revision in the earnings guidance.

“People were hoping that they would at least narrow the (profit outlook) range, if not raise it little bit,” said Stephen Volkmann, equity analyst at Jefferies. “Obviously, neither of those things happened. Given the strong quarters CAT has put up until now, it has got to be a little bit of disappointment for the bulls.”

For the third quarter, Caterpillar reported an adjusted profit of $2.86 a share, up from $1.95 a share, last year. Analysts on average had expected $2.85 a share, according to Refinitiv.

Net profit for the quarter through September came in at $2.88 per share, compared with $1.77 last year.

The Deerfield, Illinois-based company has boosted the full-year profit outlook twice this year, betting on a global economy that is poised to record its strongest growth since 2011.

However, China’s economic growth has slowed to its weakest pace since the global financial crisis and the International Monetary Fund cut the global economic growth forecasts for 2018 and 2019, so investors have turned cautious.

Caterpillar shares are down about 25 percent since late January amid deepening U.S.-China trade tensions and soaring raw material and freight costs for local manufacturers. Shares of other major industrials, including 3M Co <MMM.N>, are also in “bear market” territory, down 20 percent or more from their highs.

In probably a sign of softening demand, the order backlog at the end of the third quarter was about $400 million lower than the previous quarter, with decreases across the three primary segments.

Caterpillar also acknowledged an increase in manufacturing costs in the latest quarter due to elevated freight costs, and higher steel prices and import tariffs.

The company said tariffs will cost it about $40 million in the latest quarter. However, for the full-year, it now expects the impact to be at the low end of the previously provided range of $100 million to $200 million.

To offset the rising input cost, it will increase the prices of its machines and engines in the range of 1 to 4 percent globally from January 2019.

(Reporting by Rajesh Kumar Singh; Editing by Nick Zieminski)