Caterpillar reports earnings that badly miss the Street, cuts forecast again

Key Points
  • Caterpillar earned $2.66 per share, compared with analysts' estimates of $2.88 per share, according to Refinitiv.
  • Revenue also disappointed with $12.758 billion reported versus the $13.572 billion Wall Street analysts expected.
  • The heavy machinery manufacturer also lowered full-year earnings guidance.
Caterpillar reports earnings miss, cuts full-year outlook
Caterpillar reports earnings miss, cuts full-year outlook

Shares of Caterpillar plunged in early trading on Wednesday after the company slashed its full-year outlook and posted disappointing third-quarter earnings.

The company blamed the dismal results on a reduction in inventories from dealers. Executives said in a press release this weakness could persist due to "global economic uncertainty" resulting from "trade tensions and other factors." 

The heavy machinery manufacturer earned $2.66 per share in the third quarter, versus the consensus estimate of $2.88 per share, according to Refinitiv. Revenue came in at $12.758 billion, while Wall Street expected revenue of $13.572 billion.

The company also lowered its full-year earnings per share forecast to a range of $10.59 and $11.09 from $12.06 and $13.06 a share. Analysts expected an outlook of $11.70 per share. The company said it now expects fourth-quarter demand to be flat, dragging down by a $900 million reduction in inventories. 

The Deerfield, Illinois-based company said dealers decreased inventories by about $400 million in the third quarter. In the same period last year, they increased inventories by $800 million.

Shares of Caterpillar, a Dow component, fell as much as 6.5% in premarket trading on Wednesday, but they regained much of the losses as the market opened. Caterpillar closed up 1.2%. 

"Our volumes declined as dealers reduced their inventories, and end-user demand, while positive, was lower than our expectations," said Caterpillar Chairman and CEO Jim Umpleby.

Caterpillar's sales in Asia-Pacific declined 13% in the third quarter mainly because of the lower demand in China, the company said.

"Realistically this is what you wanted to see, you wanted to see them take fast action," said Rob Wertheimer, founding partner at Melius Research. "The worst thing you could if you get too far behind the curve on stocking up and then you have to cut later."

"The trade war leads people to bring in inventory, buy a bit little extra [because they're thinking] 'who knows what's going on, let's make sure we stock up ahead of tariffs,' and that's coming back out of the economy right now," Wertheimer said on CNBC's "Squawk Box."

Shares of the trade bellwether are underperforming the broader market this year as as global trade tensions continue to weigh. The stock is up 5% since January, compared with the S&P 500, which is up nearly 20%.