Caterpillar results hurt by weakness in China

A slowdown in China is hurting industrial equipment giant Caterpillar — and investors aren’t happy.

Caterpillar reported fourth-quarter earnings Monday morning that missed Wall Street’s forecasts. The company said sales in its Asia/Pacific unit were down 4% from a year ago, primarily “due to lower demand in China.” Caterpillar also lowered its earnings outlook for 2019.

Shares of Caterpillar fell 5% in premarket trading and the broader market tumbled as well. Futures were already pointing to a loss at the opening bell but they fell further after Caterpillar, which is a Dow component, reported results.

Caterpillar chairman and CEO Jim Umpleby said in the earnings release that the company was now assuming “a modest sales increase” for this year, in part because of the “macroeconomic and geopolitical environment.”

Weakness in China is problematic for Caterpillar. China has spent an enormous sum on infrastructure over the past few years — and has bought a lot of Caterpillar bulldozers, excavators and tractors in the process.

China accounted for between 5% and 10% of its total sales and 10% to 15% of its construction unit’s revenue, Caterpillar Chief Financial Officer Andrew Bonfield said during the company’s last earnings conference call in October.

The Chinese economy has lost momentum in recent months, and companies with big exposure to the world’s most populous nation have been hurt.

Apple has already warned about weaker iPhone sales in China. Tire maker Goodyear and FedEx have also said that softness in China was hurting their profits.

The continued drama surrounding trade talks between the United States and China could also complicate matters for Caterpillar. Its impact from tariffs on steel and other materials was about $40 million in the third quarter, and Caterpillar expected tariffs to cost it between $100 million and $200 million for the full year, the company said in October.

Caterpillar did not give any update Monday in its earnings release about the impact from tariffs. But Caterpillar executives will have a conference call with analysts later Monday morning.

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