Industrials

Caterpillar drops after company cuts guidance, citing tariffs and lower demand in China

Key Points
  • Caterpillar earned $2.83 per share in the second quarter, versus consensus estimate of $3.12 per share.
  • Revenue also disappointed with $14.432 billion reported compared to the $14.435 billion Wall Street analysts expected.
  • The heavy machinery manufacturer also lowered full-year earnings guidance.
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Research analyst: Caterpillar's earnings miss adds to market uncertainty

Shares of Caterpillar plunged after the company posted disappointing second-quarter results as higher material costs including tariffs and lower demand in China made a dent in its profit.

Caterpillar earned $2.83 per share in the second quarter, versus consensus estimate of $3.12 per share, according to Refinitiv. Revenue also disappointed with $14.432 billion reported compared to the $14.435 billion Wall Street analysts expected, according to Refinitiv.

The heavy machinery manufacturer also lowered full-year earnings guidance to be at the lower end of previous range of $12.06 to $13.06, short of the estimate of $12.24 per share.

Shares of Caterpillar fell 4.48% on Wednesday following the earnings release.

The worse-than-expected results are partially due to the increase in manufacturing costs, which came from "higher material costs, including tariffs, variable labor and burden and warranty expense," the company said.

Caterpillar's sales in Asia-Pacific declined in the second quarter mainly because of the lower demand in China, the company said.

The trade bellwether significantly underperformed the broad market in 2019 as global trade tensions continue to weigh. Its stock is up only about 8% compared to the S&P 500's nearly 20% gain this year.

Caterpillar CEO Jim Umpleby believes demand from China will stabilize as the company takes action to compete against local rivals.

"Based on everything that we see we believe overall the market demand will be stable and we have mentioned the fact that we have some competitive pricing pressures from local competitors," Umpleby said on the earnings call. "We are suddenly taking steps to ensure our competitiveness long-term in China. We're introducing a number of GC products that will help us compete as well but again, we feel good about our forecast there in China."

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