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1. Caterpillar Inc.

Caterpillar Sinks as Cost Worries Outweigh Record Profit

Oct. 23, 2018
The company has been trying to raise prices at a time when analysts say some end-user industries may be reaching peaks in their growth cycles.

Caterpillar Inc. (IW 500/27) beat earnings estimates for the tenth straight time and announced its best third quarter ever -- and yet shares still fell.

The world’s largest mining- and construction-equipment maker dropped more than 7% after the company again flagged cost concerns. Caterpillar notified dealers it would increase some prices 1% to 4% worldwide starting in January. The company maintained its outlook for 2018 profit of $11 to $12 a share. The midpoint of that forecast was below the average estimate of analysts.

“This is likely to be a negative for Caterpillar, but also for industrials broadly that are having a hard time living up to heightened expectations,” said Larry De Maria, an analyst at William Blair & Co. “Markets are in a precarious situation, and under pressure again this morning, and Caterpillar’s stock will probably further weigh it down.”

Caterpillar, an economic bellwether expected to report record earnings this year, is feeling the pinch as trade frictions boost metal costs. The company has been trying to raise prices at a time when analysts say some end-user industries may be reaching peaks in their growth cycles. The International Monetary Fund this month warned of “choppy” waters in the global economy.

The cost of benchmark steel in the U.S. has risen almost 30% this year amid growing global demand and U.S. tariffs on the metal that have made domestic prices expensive compared with the rest of the world.

“Manufacturing costs were higher due to increased material and freight costs,” the company said in a statement Tuesday. “Material costs were higher primarily due to increases in steel prices and tariffs.”

Caterpillar shares fell to $118.77 at 8:01 a.m. in New York. The heavy-equipment maker dropped to the lowest closing price this year on Monday.

By Joe Deaux

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