Signs of Trouble for Caterpillar, 3M Send Industrial Shares Lower
October 23 2018 - 11:06AM
Dow Jones News
By Austen Hufford
Caterpillar Inc. said tariffs and trucking rates were pushing up
costs, and 3M Co. raised concerns about China's slowing growth,
dragging down shares across the U.S. industrial sector.
Shares in Caterpillar fell 8.8% on Tuesday, and 3M's shares fell
6.4%. Shares in Harley-Davidson Inc. fell 4% after the motorcycle
maker said it sold fewer Hogs in the third quarter than a year
earlier. The S&P 500 Machinery index was down 4.3%.
Caterpillar said tariffs the Trump administration implemented
earlier this year on foreign steel and aluminum made parts for the
machinery it manufactures in the U.S. more expensive. Caterpillar
tariff-related costs for the year would likely come in at the low
end of the previous range of $100 million to $200 million it
forecast. 3M, too, expects the tariffs to push up its costs by
about $100 million.
3M also said sales of its face masks and other products in China
were dropping as economic growth there cools. Caterpillar said on
Monday that its sales in China in the three months through
September were up 11% from a year earlier, compared with a 19% gain
in the three months through August. China's economic growth of 6.5%
in the third quarter was its weakest pace since the financial
crisis.
"We see other signs of slowing in China, the automotive build
rates are down significantly and that has a knock-on effect," 3M
Inc. Chief Executive Michael Roman said. 3M Co. reported slower
sales growth across most of its business lines in the third
quarter.
3M and other manufacturers have raised prices to offset rising
costs. Caterpillar said it would raise prices on most machines and
engines by as much as 4% next year. United Technologies Corp.,
which makes Pratt & Whitney jet engines and Otis elevators,
said on Tuesday it would continue to raise prices across its
portfolio next year if tariffs were still in place.
"Ultimately, these tariffs can get all passed on the consumer in
one form or another," United Technologies Chief Executive Gregory
Hayes said.
The conglomerate said its third-quarter profit dropped 7% as
higher costs offset an increase in revenue.
The share selloff belied some signs of strength for
manufacturers. Caterpillar reported higher profit in the third
quarter thanks to strong sales and its higher prices. Harley
reported higher revenue and profit, beating expectations.
But investors recoiled from signs that manufacturers face
trouble ahead. Some companies said high trucking costs and parts
shortages have made it difficult to raise production. Heavy-duty
truck maker Paccar Inc. on Tuesday said its margin was hurt by
parts shortages in North America.
"The sharp increase in demand has led to supply chain challenges
across the industry," Caterpillar said in a release.
Caterpillar reported adjusted earnings of $2.86 a share in its
third quarter, above last year's $1.95, two cents higher than the
$2.84 expected by analysts polled by FactSet, as higher prices and
increase volume offset rising costs.
That's the narrowest beat for Caterpillar since it missed
expectations by a cent in April 2016. Since that miss, reported
results have been 29% higher than expectations, compared with 0.8%
higher Tuesday.
The Deerfield, Ill.-based company reaffirmed its adjusted
earnings per share guidance for the year of $11 to $12.
3M said sales fell 0.2% from a year earlier to $8.15 billion.
The St. Paul-based company said it expects earnings for the year to
be between $8.78 and $8.93 a share, down from the range of $9.08 to
$9.38 a share it previously guided.
Milwaukee-based Harley, which also announced a recall on Tuesday
of 238,300 motorcycles due to a clutch defect, said revenue from
motorcycles and related products rose 17% in the third quarter from
the year earlier to $1.12 billion. Analysts had predicted $1.07
billion.
Write to Austen Hufford at austen.hufford@wsj.com
(END) Dow Jones Newswires
October 23, 2018 11:51 ET (15:51 GMT)
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