Caterpillar Comment Spooks Investors -- WSJ
25 April 2018 - 9:02AM
Dow Jones News
By Andrew Tangel
This article is being republished as part of our daily
reproduction of WSJ.com articles that also appeared in the U.S.
print edition of The Wall Street Journal (April 25, 2018).
Business is booming at Caterpillar Inc. It's the future that's
in question.
The company, which makes bulldozers, mining trucks and other
equipment, said sales rose 31% in the first quarter thanks to
strong global construction and mining activity. But on a call with
analysts, top executives said the quarter could prove to be a
"high-water mark" for the year.
That's all the market needed to hear. Caterpillar's shares
dropped 6.2% on Tuesday, pressuring the Dow Jones Industrial
Average.
"It got everybody spooked," said Stifel analyst Stanley
Elliott.
The news wasn't much better for another major industrial
manufacturer, 3M Co. Its shares fell 6.8% after the maker of myriad
products including tapes and adhesives narrowed its revenue and
profit forecast for this year.
Executives of both companies pointed to rising costs as a threat
to profits.
"We are seeing some increases in raw material prices, in fact,
more than what we originally estimated," said 3M Chief Financial
Officer Nicholas Gangestad. He said the St. Paul-based conglomerate
faced higher transportation and material costs as oil prices
rose.
Executives at both 3M and Caterpillar, of Deerfield, Ill., said
they would raise prices to offset the hit to profits.
They also said their steel costs have risen since the Trump
administration moved in recent months to place duties on imports
from many foreign countries.
Caterpillar warned that trade tensions that reach far beyond the
steel industry could darken the outlook for the rest of the year.
Officials in both China and the U.S. are threatening each other
with additional trade barriers. "We remain optimistic that
government leaders can work towards a positive outcome," Amy
Campbell, Caterpillar's director of investor relations, said in an
interview.
Still, Caterpillar boosted its outlook for the year by $2 above
the upper end of its previous forecast, saying it could earn as
much as $10.75 a share in 2018. "It certainly wasn't our intent to
express a concern," Chief Executive Jim Umpleby told analysts after
one noted the sharp share drop.
Sales growth in North America was Caterpillar's biggest driver
in the quarter. Dealers boosted inventories as demand for
construction equipment increased, primarily due to public works and
energy infrastructure such as pipelines.
Increased building construction and spending on infrastructure
in China drove sales in its Asia/Pacific region. Ms. Campbell told
analysts that demand in China for 10-ton excavators would rise 30%
this year, versus earlier predictions of 8%. "We do at this point
continue to expect China to be very strong for the rest of the
year," she said.
Mining companies increasingly replaced equipment and expanded
their fleets as commodity prices remained strong.
Overall for the first quarter Caterpillar reported a profit of
$1.67 billion, or $2.74 a share, up from $192 million, or 32 cents
a share, a year earlier. On an adjusted basis, earnings more than
doubled to $2.82 a share.
Last year's results were dented by $723 million in restructuring
costs primarily related to a facility closure. Caterpillar's
restructuring costs in the most recent quarter were $69 million.
Analysts polled by Thomson Reuters had forecast earnings of $2.13 a
share on $12.07 billion in sales. The company's domestic workforce
stood at 51,500 employees at the end of March, up from 46,500 a
year ago.
Write to Andrew Tangel at Andrew.Tangel@wsj.com
(END) Dow Jones Newswires
April 25, 2018 02:47 ET (06:47 GMT)
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