US manufacturers see signs of new risks

Caterpillar shares closed down 7.6% Tuesday, after being 10% lower at one point, and 3M lost 4.4%. Shares of Harley-Davidson Inc. fell 2.2% after the motorcycle manufacturer reported selling fewer hogs in the third quarter of the previous year. The S & P machinery index is down 4.2% this week.

Selling is the clearest sign to date that manufacturers could turn around again after a year of strong production and sales, driven in part by tax cuts and strong consumer confidence.

"There are loopholes in the armor," Jefferies analyst Steve Volkmann told the leading US makers.

Report for duty

The expected impact of the 2018 tariffs is only a fraction of the cost of the products sold by the companies, but executives warned that the impact on rates could more than double next year.

2018 tariff costs for some companies

In addition to

total costs

Results reports have shaken the overall market, which has stabilized after Caterpillar executives, in a telephone conversation with analysts, gave assurances that prices and larger inventory of its equipment at dealerships were manageable. "We believe that business continues to be strong in most of our end markets," said Managing Director Jim Umpleby.

But rising costs, including tariffs on US-China trade, were at the center of many investors' concerns.

Caterpillar announced that Trump's early-year tariffs on foreign steel and aluminum parts for US-made machinery were more expensive. Caterpillar stated that the rate-related costs for this year would likely be in the lower portion of the previous range of $ 100 million to $ 200 million that it anticipated. 3M expects rates to increase costs by about $ 20 million this year and $ 100 million next year.

3M also said sales of its face masks and other products in China were down as economic growth cooled. Paint and Coatings Manufacturer

PPG Industries
Inc.

said last week that demand in China was falling due to lower spending on cars. China's economic growth of 6.5% in the third quarter was its weakest pace since the financial crisis.

"We see other signs of slowdown in China; car manufacturing rates have dropped significantly, which has an impact, "said Michael Roman, 3M's general manager. 3M reported slower sales growth in most of its business segments in the third quarter.

Caterpillar executives are planning good deals in China next year. Chinese officials said the government is ready to invest more in infrastructure if growth slows, which analysts say could boost Caterpillar's machine sales in the country.

China's economic problems are due in part to the trade struggle with Washington, which has seen officials in both countries apply equal tariffs for hundreds of billions of dollars in bilateral trade.

Lennox International
Inc.

A manufacturer of heating and air conditioning systems, announced on Monday that he planned to relocate some of the Chinese production to avoid these obstacles.

"I'm not sure Chinese tariffs are going to be short-term, so we're taking steps to avoid them by moving to Southeast Asia and other low-cost countries that can meet our requirements." said Lennox CEO Todd Bluedorn. I said.

Scott Wine, general manager of the boat and motorcycle manufacturer

Polaris Industries

Inc., warned this week of "harsher" costs if the Trump administration imposed more rights on Chinese products.

At the same time, Harley said that a stronger US dollar had detracted from international sales earnings on which the company is counting more and more to boost its growth. Harley, based in Milwaukee, said the strong dollar had cost him $ 7.4 million last quarter.

3M and other manufacturers have increased their prices to offset rising costs. Caterpillar has announced that it will raise prices for most machines and engines up to 4% next year. Last week, paint manufacturer

PPG Industries
Inc.

and giant consumer goods

Procter & Gamble
Co.

said that they were raising prices to reflect higher commodity costs.

United Technologies
Corp.

, which manufactures Pratt & Whitney jet engines and Otis lifts, announced Tuesday that it would continue to raise its portfolio prices next year if fares were still in effect.

"In the end, these rates can all be passed on to the consumer in one form or another," said United Technologies chief executive Greg Hayes. The company anticipates tariff costs of approximately $ 53 million this year and $ 160 million next year.

The conglomerate said its third-quarter profit fell 7 percent, as higher costs offset higher revenue.

Some manufacturers said this week that the nationwide shortage of trucking capacity and rising oil prices are driving up their transportation costs. Others find it difficult to find the parts they need to increase their production. Truck manufacturer

Paccar
Inc.

said Tuesday that its margin was affected by a shortage of parts in North America.

In the third quarter, Caterpillar announced adjusted earnings of $ 2.86 per share, an increase of $ 2.95 over the $ 2.84 expected by analysts surveyed by FactSet.

This is the narrowest beat for Caterpillar since it had not exceeded the one-cent expectations in April 2016. Since then, reported results have been 29% higher than expected , against a rise of 0.8% Tuesday.

The Deerfield, Illinois-based company has confirmed its guidance for adjusted earnings per share for the year ranging from $ 11 to $ 12.

3M said its sales had dropped 0.2% from the previous year to $ 8.15 billion. The St. Paul-based company said it expects year-to-date earnings to be between $ 8.78 and $ 8.93 per share, down from the $ 9.08 range. at $ 9.38 per share that she had previously guided.

Harley, who also announced Tuesday a recall of 238,300 bikes due to a clutch failure, said motorcycle and related product sales rose 17 percent in the third quarter versus the year previous year, to reach $ 1.12 billion. Analysts predicted $ 1.07 billion.

Write to Austen Hufford at [email protected] and Doug Cameron at [email protected]