Caterpillar misses profit estimates after warnings on Trump tariffs

By EarningsFOXBusiness

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FBN’s Jennifer Schonberger on the release of the Fed’s Beige Book and the state of the U.S. economy.

Profits at Caterpillar missed Wall Street estimates for the fourth quarter, results that could reignite fears over a global economic slowdown given the manufacturing firm's immense international operations.

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Net income at the Deerfield, Ill.-based company grew to $2.55 per share in the three months through December, less than the $2.99 per share that analysts expected, it said on Monday. Revenue rose to $14.3 billion, in-line with Wall Street expectations.

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Last year, Caterpillar said it would have to raise costs to mitigate the impact of President Trump’s double-digit tariffs on steel and aluminum imports. Cost of sales -- a key indicator of the effect of the new levies -- rose 11 percent in the quarter to nearly $10 billion.

Overall for 2018, revenues rose to $54.7 billion, while profits grew to $11.22 per share. Caterpillar expects net income to hit as high as $12.75 per share in 2019.

“Our outlook assumes a modest sales increase based on the fundamentals of our diverse end markets as well as the macroeconomic and geopolitical environment,” CEO Jim Umpleby said.

TickerSecurityLastChange%Chg
CATCATERPILLAR INC.114.06-3.83-3.25%

Alongside the tariffs on the commodities, Trump has also imposed duties on $250 billion in Chinese shipments to the U.S.

The White House is in the midst of negotiations with China over deal to address the trade deficit between the two countries, as well as Beijing’s theft of intellectual property and forced technology transfer for those companies that seek to do business there. A delegation of 20 Chinese officials is slated to visit Washington D.C. this week to continue discussions.

Meanwhile, a slow-down in the Chinese economy is spurring fears of a potential global recession. While Caterpillar's sales in Asia grew 8 percent in the quarter, it was the slowest growth across all the company's four regions. Construction sales in Asia fell 4 percent amid "lower demand in China."

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Despite concerns that the U.S. economy will also slow in 2019, Trump’s deregulation efforts -- along with the GOP-led tax cuts that lowered the corporate tax rate down to 21 percent – is spurring record-high optimism among manufacturers, according to a recent survey from the National Association of Manufacturers.

Democrats, who have vowed to roll-back aspects of the new tax tax law, argue that the benefits for corporate America largely benefitted shareholders not employees. Caterpillar in 2018 spent $3.8 billion on stock buybacks.