Caterpillar stock slides after missing profit estimates

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Caterpillar Inc on Monday missed quarterly earnings estimates, hurt by soft Chinese demand, higher manufacturing and freight costs, and higher U.S. tax rate and import duties, sending shares of the heavy machinery maker tumbling as much as 10 percent.

Industrial bellwether Caterpillar now expects construction equipment sales in China, the world's second-largest economy, to be flat this year. China, which accounts for up to 10 percent of the company sales, last week reported its slowest economic growth in nearly three decades.

Caterpillar posted a decline in construction equipment sales in the Asia-Pacific region in the latest quarter due to the cooling China demand.

Since China is one of the world's largest commodities importers, its slowing economy is having a ripple effect on global commodities prices, which can also hurt the company's equipment sales in the mining and oil and gas industry, for example.

Caterpillar downplayed the slump in China, citing a “very strong” performance a year ago, but did not break out sales. Chinese construction demand was up 40 percent in 2018 after doubling in 2017.

Caterpillar, a proxy for global economic activity, benefited in the past year from what the International Monetary Fund called the strongest global growth surge since 2010.

However, a tariff war between the United States and trade partners including China has stoked fears of a global slowdown.

The tariffs cost the company over 100 million U.S. dollars last year. No relief was expected from higher import duties this year, the company said.

Lawrence De Maria, a William Blair analyst, said the 2019 forecast was “indicative of slowing growth and a maturing cycle that implies peak markets, and effectively may put a lid on any cyclical industrial rally for now.”

Caterpillar slid 8.9 percent in afternoon trading. Shares lost 19.4 percent in 2018, compared with a 15 percent drop in S&P 500 index and a 5.6 percent decline in the Dow.

Volatile oil prices brought down Caterpillar's order book in the last quarter by about 800 million U.S. dollars from the previous quarter.

Source(s): Reuters