Caterpillar Stock Price Drops On Outlook Miss

Caterpillar said it expects weaker-than-expected earnings for this year after reporting lower sales across all three primary divisions in Q4 2019, adding to the US industrial recession.

The construction machinery and equipment company forecasted this year’s profit of $8.50 to $10 per share, weaker than $11.06 per share a year ago, and below analysts' expectations of $10.63 per share.

Caterpillar reported Q4 adjusted profit of $2.63 per share, as opposed to $2.55 per share last year, beating analysts' forecast of $2.37 per share, according to IBES data from Refinitiv.

The trade war between the US and China has made Caterpillar’s clients wary of committing to large capital investments, thus harming its sales and compelling production cuts.

As customers became reluctant to invest in new equipment, retailers reduced their stocks by $700 million in the quarter through December, resulting in declining sales in the machinery, energy, and transport section.

The construction machinery and equipment company predicts an annual 9% decline in retail sales this year, bringing about a cut of roughly $1.5 billion in dealer inventories.

Shares of Caterpillar dropped 0.6% to $134.60 in pre-market trade.

A day before Caterpillar published its earnings report, the logistics behemoth United Parcel Service (UPS) also published lower-than-expected profit outlook for 2020, quoting world trade issues and a drop in domestic industrial output.

The prolonged trade disputes between the world’s two largest economies took the global economy last year to its lowest point since the world economic crisis. In the United States, it drove the manufacturing economy into a recession.

Caterpillar has been trying to control costs while facing weaker demand this year. Cost control helped increase operating profits in Q4, despite lower sales.

The company’s CFO Andrew Bonfield said that managing the costs by reducing material and freight expenses will compensate for weak equipment demand this year.