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Caterpillar (CAT) reported third-quarter results on Wednesday that missed Wall Street’s expectations, underscoring the industrial bellwether’s ongoing struggle to sell equipment against a slowing global growth backdrop.
Here were the main numbers from the report compared to consensus estimates as compiled by Bloomberg:
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Revenue: $12.8 billion, vs. $13.41 billion expected and $13.51 billion YOY
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Adjusted earnings per share: $2.66, vs. $2.87 expected and $2.86 YOY
Shares of Caterpillar, one of the 30 components of the Dow Jones Industrial Average (^DJI), tumbled 5.8% to $126.00 as of 6:37 a.m. ET. If those losses are sustained, it could mean a rough day for investors on Wall Street after the opening bell.
According to the company, the primary driver of its revenue softness was a swing to a decline in dealer inventories during the third-quarter over last year. Dealers cut inventories by $400 million in the third-quarter of this year, after having ramped up inventories by about $800 million in the year-ago period, Caterpillar said.
"Our volumes declined as dealers reduced their inventories, and end-user demand, while positive, was lower than our expectations," CEO Jim Umpleby said in a statement. "We remain focused on executing our strategy and continuing to achieve our Investor Day targets for margin improvement and free cash flow."
Beneath the headline revenue miss, Caterpillar’s key construction industries and energy and transportation business segments also missed sales expectations, dropping on a year-on-year basis. In construction industries, the segment comprising the bulk of Caterpillar’s machinery sales, revenue slumped 29% in the Asia Pacific region but posted a modest 3% rise in North America.
The Deerfield, Illinois-based company also lowered its full-year profit guidance. It now expects profit per share of between $10.90 to $11.40, versus previous guidance for as much as $13.06 per share.
"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," Umpleby said.
"Caterpillar's improved lead times, along with these dealer inventory reductions, will enable us to respond quickly to positive or negative developments in the global economy in 2020,” he added. “We are expanding our offerings and investing in services, including digital capabilities, to drive long-term profitable growth, while continuing to achieve our Investor Day targets for improved financial performance."
Caterpillar, widely seen as a barometer for global industrial activity, was largely expected to see results weighed down again by decelerating global growth and weakening manufacturing sector trends. These factors have disincentivized machinery spending by many of Caterpillar’s customers this year.