Caterpillar slashes profit outlook as sales slip in China, U.S.
Industrial bellwether Caterpillar Inc reported a drop in sales in the United States and China in the third quarter, leading it to cut its outlook for the year and adding to evidence that the global economy is firmly on the decline.
The Illinois-based machinery maker, famous for its black and yellow diggers and earthmovers, also said the impact on its business from Beijing and Washington’s titfor-tat trade tariffs would now be lower than previously forecast.
However, it said that cuts in the inventory carried by the network of retailers who sell its products would accelerate further in the fourth quarter and see continued “moderate” pricing for its range of goods next year.
Sales in Asia-pacific, its third biggest market, fell 13 per cent as it faced falling demand in China and competition from cut-price domestic rivals, while revenue in its main developed world market in North America fell almost three per cent.
That drove an initial slide of five per cent in the company’s shares, now only marginally higher this year, and left analysts predicting little immediate improvement.
“While inventory reduction should set the company up for easier comparisons in 2020, trends in all three end markets continue to decelerate, raising the question of how far ahead the market is willing to discount the shares,” said Jefferies analyst Stephen Volkmann.
The company’s third-quarter profit for shareholders of US$2.66 per share was well short of Wall Street estimates and the number for the same period a year ago — both set at US$2.88 per share.
Caterpillar said the slump in Asia was led by a 29-per-cent plunge in construction equipment sales and chief executive Jim Umpleby said he expected overall demand in the fourth quarter to be flat.
Total sales and revenue for the third quarter ended Sept. 30 fell 5.6 per cent from a year earlier to US$12.76 billion. “Sales in Asia/ Pacific were lower across most of the region primarily due to lower demand in China, including unfavourable changes in dealer inventories, amid continued competitive pressures,” the company said.