Caterpillar tries to quell the worries about profits after the fall of the stock of shares

CHICAGO (Reuters) – Caterpillar Inc. (CAT.N) attempted on Tuesday to alleviate growing concerns about China and global demand after it confirmed its earnings estimates for 2018, a decision investors feared, said a limitation on earnings growth and a massive sale of his shares.

The Deerfield, Illinois-based company has doubled the earnings outlook for the full year during the first two quarters of this year. This had built the hope of another upgrade. However, the company maintained its adjusted earnings guidance for 2018 of $ 11.00 to $ 12.00 per share, stating that nothing had changed since the last review in July.

The move comes just days after China announced the weakest economic growth since the global financial crisis and the International Monetary Fund cut global growth prospects for 2018 and 2019.

The industrial sector, however, said it expects the Chinese market to remain healthy, resulting in an annual 40% increase in sales of the standard hydraulic excavator sector this year.

"We are very comfortable with the prospects for China," said CFO Andrew Bonfield, in an interview. "We are still expecting another good year in China."

Bonfield said the world's second-largest economy accounted for between 10 and 15 percent of CAT's construction equipment sales and between 5 and 10 percent of the company's total sales.

In the last quarter, construction and non-residential infrastructure activities in China generated a 19% increase in Caterpillar's construction equipment sales in the Asia-Pacific region.

Chinese dealers recorded one of the largest increases in Caterpillar product inventories in the third quarter, the company said.

A VICTIM OF GREAT EXPECTATIONS

Bullish comments helped Caterpillar's stock recover from their worst sell since at least April, but the stock was still down 7 percent to $ 119.67 on Tuesday night. The .JII, which includes Caterpillar, also reduced early-year losses and dropped 32.48 points.

"Most investors are working with the base scenario of a recession in 2019 or 2020," said Rizk Maidi, an analyst at the Berenberg Stock Research firm in London. "People are simply looking for any data point to confirm that earnings have peaked."

Elizabeth Vermillion, an analyst at CFRA Research, said the company also had high expectations after its profits surpassed Wall Street's estimates over the last nine reporting periods.

For the third quarter, adjusted earnings per share were $ 2.86, compared with $ 1.95 last year. Analysts expected an average of $ 2.85 per share, according to Refinitiv.

PERSPECTIVE

Caterpillar shares have fallen more than 25% since the end of January, as trade tensions between the US and China have intensified and raw material and freight costs have increased for local manufacturers. Shares of other major industries, including 3M Co (MMM.N), are also in "bearish" territory, down 20% or more from their peaks.

CAT stated that most of its end markets continued to improve, allowing it to increase sales in all three major industries.

Maidi said Caterpillar's profits could still grow, with revenues 25% lower than their 2012 peak.

On Tuesday, Bonfield asked investors to expect smaller increases in their profits.

"There comes a time when you grow to more normal levels," Bonfield said. Profits increased 47% in the third quarter, down sharply from 99% and jumps by 120% in the second and first quarters, respectively.

Caterpillar also saw an increase in manufacturing costs in the last quarter due to high transportation costs, higher steel prices and import duties.

He said the rates would cost him about $ 40 million in the last quarter. However, for the entire year, he estimated that the impact would be in the lower part of the previous forecast, which was between $ 100 million and $ 200 million.

To offset rising input costs, it will increase the prices of its machines and engines by 1 to 4% worldwide from January 2019.