CAT Caterpillar Inc

By Austen Hufford 

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 (February 1, 2020).

Caterpillar Inc. said it expects demand for its machinery to fall this year, widening a performance gap between some manufacturers and an otherwise robust U.S. economy.

The maker of equipment for mining companies and builders around the world said Friday that global economic uncertainty crimped sales in the latest quarter as companies held off on big purchases. Revenue in 2019 was 1.7% lower than a year earlier, and Caterpillar said it expected another decline in 2020.

"A lot of people have been deferring making capital decisions," Andrew Bonfield, Caterpillar's financial chief, said in an interview.

The company's shares closed Friday nearly 3% lower at $131.35.

Cost reductions helped offset lower demand in Caterpillar's latest quarter. Adjusted profit per share rose 3.1% as the company reduced production and hired fewer temporary workers.

Caterpillar joined a chorus of manufacturers saying they expect sluggish conditions to carry into 2020. Lingering trade tensions, Boeing Co.'s idled 737 MAX production lines and the coronavirus outbreak in China all threaten to extend a rough patch for U.S. factories.

"The industrial economy in the United States is very weak," Stanley Black & Decker Inc. Chief Executive James Loree said in an interview last week. He said suppliers and producers were experiencing an inventory mismatch that he expects to dissipate in time. The company has said it expects slowdowns in automobile production and domestic oil-and-gas drilling to continue in the first half of this year.

3M Co. Chief Executive Mike Roman said this week that he expects the conglomerate's sales to other manufacturers to lag sales to consumers this year. The maker of an array of products from electrical tape to molar crowns is planning a second round of layoffs in less than a year as part of a global restructuring.

"The industrial-production-related businesses are a little lower growth, " Mr. Roman said in an interview.

DuPont de Nemours Inc., which makes nylon and other materials, and paint company PPG Industries Inc. both said lower industrial demand would weigh on business this year as well. Conglomerate Honeywell International Inc. on Friday reported lower-than-expected sales for the fourth quarter.

The U.S. manufacturing sector contracted for five straight months through December, according to the Institute for Supply Management. New orders for so-called core capital goods, which excludes aircraft and defense orders, were largely flat in 2019, according to the Commerce Department.

"Customers are being cautious due to global economic conditions," Caterpillar Chief Executive Jim Umpleby said on a call with analysts.

Still, manufacturing drives just about a tenth of the economy, and other sectors are performing better. Consumer confidence is strong, unemployment is at the lowest level in half a century and incomes are rising. Gross domestic product grew 2.3% last year, the Commerce Department said Thursday.

Caterpillar, which sells its construction and mining machines to customers in 193 countries, is widely viewed as a barometer for global industrial vigor. The company, which makes its sales through a network of independent dealers, said it expects revenue to decline this year as demand from companies that buy its machines falls by between 4% and 9%. In North America, Caterpillar said it expects construction activity to decline and demand from oil-and-gas customers to remain weak.

The Deerfield, Ill.-based company said machinery sales fell 14% in North America, 16% in Latin America and 6% in its Europe, Africa and Middle East region for the fourth quarter from a year earlier. Sales in Asia were flat for the quarter.

The coronavirus outbreak in China poses a new threat to businesses operating in the country. Many factories have extended closures planned over the Lunar New Year holiday as people avoid travel.

Caterpillar said it is delaying opening some facilities in China by up to a week, and that its factories in China aren't in parts of the country most affected by the outbreak.

Caterpillar said total revenue, which includes financial services, declined 8.4% for the quarter to $13.14 billion as net income rose 4.8% to $1.1 billion. Adjusted profit per share rose 3.1% to $2.63 in the fourth quarter.

Amber Burton

contributed to this article.

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

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February 01, 2020 02:47 ET (07:47 GMT)

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