CAT Caterpillar Inc

By Austen Hufford 

Caterpillar Inc. trimmed back its profit forecast, amid lower sales in China and higher tariff and labor costs, as the machinery giant steers through a tricky moment in the global economy.

The maker of bulldozers and excavators said machine sales in Asia declined 8% in the second quarter due to competitive pricing pressure and the timing of a Chinese holiday that slowed purchases. Meanwhile, revenue in the U.S. and Canada grew 11% in the quarter thanks to strong demand from construction and mining clients.

"China was down" Caterpillar financial chief Andrew Bonfield said on Wednesday in an interview. "That was more than offset by the strength of our North American business."

Caterpillar said that earnings per share for the year would now come in at the low end of its previously given range of $12.06 to $13.06. Its shares closed down 4.5% on Wednesday.

The Deerfield, Ill., company's list of clients across the global construction and mining industries make it a barometer for the state of the industrial economy. While growth in the U.S. remains relatively robust, the world economy has slowed this year as trade tensions take a toll on commerce and sentiment.

Earlier this month, China's economic growth decelerated to its slowest rate in decades. Caterpillar said it expects demand in China to be stable in the second half of the year.

Caterpillar is also facing higher costs as a result of tariffs enacted by the U.S. in its trade fight with China and other nations.

Caterpillar said it had $70 million in costs related to tariffs in the quarter. On top of $70 million in costs for the first quarter, that is already more this year than the $110 million in tariff costs the company booked last year after U.S. tariffs on foreign steel and aluminum took effect in March 2018. The company continues to expect $250 million to $300 million in tariff-related costs this year.

Caterpillar has raised prices that offset those costs, and higher prices raised the company's operating profit by $427 million in the quarter.

Weakness in the company's domestic natural-gas business also weighed on results. Natural-gas prices have fallen 21% this year, according to FactSet, which has hurt investment in the sector. Caterpillar saw lower demand for new equipment in the Permian Basin, an important oil and gas area in the southern U.S.

Spending on infrastructure projects by state and local governments helped boost construction-equipment sales, Caterpillar's said, while weak home construction weighed on results.

Caterpillar also sold a larger number of smaller, less-profitable machines in the quarter, which had a negative impact on profit.

"We are selling more machines, but some of the smaller machines," Mr. Bonfield said.

Caterpillar said second-quarter revenue rose 3% from a year earlier to $14.43 billion.

Profit per share rose 1 cent to $2.83, coming in below the $3.12 that analysts were expecting, according to FactSet.

The company reported a total profit $1.62 billion, down from $1.71 billion, as the number of shares outstanding dropped 5%.

--Micah Maidenberg contributed to this article.

Write to Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

July 24, 2019 18:41 ET (22:41 GMT)

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