Financial Services

Caterpillar shares dive 7% after industrial giant says material costs are rising because of tariffs


Shares of Caterpillar dropped 7 percent after it gave disappointing 2018 guidance and management pointed out costs were rising because of tariffs.

The company reiterated its prior 2018 EPS guidance range of $11.00 to $12.00 adjusted, but Wall Street expected the company to raise that forecast. The lower range of that forecast fell short of the $11.65 EPS estimated by analysts, according to Refinitiv.

“Manufacturing costs were higher due to increased material and freight costs. Material costs were higher primarily due to increases in steel prices and tariffs,” the company stated in a press release. “In the fourth quarter, price realization, operational excellence and cost discipline are expected to more than offset higher material and freight costs, including tariffs.”

Later in the release, the company said the impact of tariffs for third-quarter material costs was about $40 million.

“For the full year of 2018, we expect the impact of recently imposed tariffs will be at the low end of the previously provided range of $100 million to $200 million,” the company said.

Caterpillar’s stock has slid in 2018 as concerns over the trade relationship between the United States and China persist. The company stock is down 15 percent in October even before the company disclosed its earnings.

The big machinery exporter said 2018 profit per share hit $2.88, a third-quarter record. After adjusting for restructuring costs and a tax benefit to adjust deferred balances, adjusted earnings per share in the third quarter of 2018 was $2.86, above the $2.85 expected by analysts polled by Refinitiv.

The EPS results are 46 percent higher than third-quarter 2017 results of $1.95 per share. Revenues of $13.51 billion topped analyst expectations of $13.29 billion, according to Refinitiv.

“This was the best third-quarter profit per share in our company’s history,” said Caterpillar CEO Jim Umpleby. “Our global team continues to do excellent work focusing on our customers’ success and executing our strategy for profitable growth.”

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