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Caterpillar Reports Q3 Profit Drop, Downgrades Full Year

Caterpillar Reports Q3 Profit Drop, Downgrades Full Year
Weak demand for construction and mining equipment all over the world has drive the industrial equipment manufacturer Caterpillar to report a larger than expected drop in revenues for the third quarter of the current year. This forced Caterpillar, which is also known as the industrial bellwether, to also lower its profit outlook for the entire year.
Compared to the earlier forecast by the company of making a profit of between $12.06 to $13.06 a share, this Illinois-based company brought down its earnings forecast for the full year now to between $10.90 to $11.40 a share. The company said that the lowering of the earning by the company for the current year reflects “modestly lower sales” for 2019.
The United States based company said that it expects that global demand for its bulldozers, backhoes and other large machinery which it manufactures will be more or less flat for the current year.
Compared to the penultimate quarter a year ago, there was a 6 per cent drop in the revenues generated by the company which came in at $12.8bn for the third quarter of the current year because of a reduction in inventories by the dealers of the company, Caterpillar said. And according to a Refinitiv survey of analysts, the number was significantly lower than market expectations of revenues by the company of $13.6bn.
The news of the earnings resulted in the shares of the company dropping by 5 per cent to $127.49 in pre-market trading after gaining more than 5 per cent for the current year so far as of Tuesday.
“Our volumes declined as dealers reduced their inventories, and end-user demand, while positive, was lower than our expectations,” said Jim Umpleby, chief executive of Caterpillar.
The company said that demand from the dealers of the company for its machinery and engines, which the dealers purchase as inventories, was reduced by $400m in the third quarter while the same figure in the same period a year ago had seen an increase of $800m.
All of the major business segments of the company — construction, resources and energy industries, reported a slowdown in demand and consequently revenues.
However, robust road and non-residential building construction in the North America helped the company slightly increase revenues from the region for the construction segment of the company which is Caterpillar’s largest segment, during the quarter. But the same business segment of the company did not perform as expected in the Asia-Pacific region primarily because of competitive pressures in China.
There have been concerns among analysts and investors about how a slowdown in the Chinese economy and the trade war between the US and China would impact the performance of Caterpillar.
In the three months ended in September, the company reported a drop in profits to $1.5bn or $2.66 a share compared to profits of $1.7bn or $2.88 a share in the same quarter a year ago. These numbers for the third quarter were also short of market expectations.

Christopher J. Mitchell

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