In yet another sign that the global economy rests on a shaky foundation, bellwether Caterpillar cut its outlook and unveiled the first decline in quarterly profits in years on Wednesday.
Sales dropped 6% to $12.8 billion in Q3, from $13.5 billion in the third quarter of 2018. EPS was $2.66, well below the $2.87 analysts were looking for and near the low-end of the range ($2.55 to $3.03).
“The primary driver of the decline in sales and revenues was a $1.2 billion movement in dealers’ inventories”, the company said. “Dealers decreased their inventories about $400 million during the third quarter of 2019, after increasing their inventories about $800 million during the third quarter of 2018”. The shares plunged in pre-market trading.
“Our volumes declined as dealers reduced their inventories, and end-user demand, while positive, was lower than our expectations”, CEO Jim Umpleby remarked.
The guidance cut isn’t good. The full-year outlook is now in the $10.90 to $11.40 range. That’s versus the previous outlook which was at the low-end of $12.06 to $13.06. The revised guidance assumes “modestly lower sales in 2019″, the company said.
Not surprisingly, Umpleby cites uncertainty in the global economy.
“In the fourth quarter, we now expect end-user demand to be flat and dealers to make further inventory reductions due to global economic uncertainty”, he laments.
“Reading through Caterpillar‘s release, there are no rays of hope in the short term”, Bloomberg’s Andrew Cinko frets. “The best spin it can put on the news is that when the recovery comes, at least dealer lots will be empty leading to a spike in orders”.
Machinery, Energy & Transportation segment revenue was $11.97 billion in Q3, woefully short of the $12.83 billion the street was expecting.
We’re sure that if you asked Peter Navarro (or “Ron Vara”), he’d tell you this has nothing to do with uncertainty stirred up by the trade war and that the company is just making excuses for poor management.
