Divide ups of Caterpillar plunged in early trading on Wednesday after the company slashed its full-year outlook and posted disappointing third-quarter earnings.
The enterprise blamed the dismal results on a reduction in inventories from dealers. Executives said in a press release this liability could persist due to “global economic uncertainty” resulting from “trade tensions and other factors.”
The heavy machinery industrialist earned $2.66 per share in the third quarter, versus the consensus estimate of $2.88 per share, according to Refinitiv. Takings came in at $12.758 billion, while Wall Street expected revenue of $13.572 billion.
The company also cut its full-year earnings per share forecast to a range of $10.59 and $11.09 from $12.06 and $13.06 a share. Analysts believed an outlook of $11.70 per share. The company said it now expects fourth-quarter demand to be flat, dragging down by a $900 million reduction in inventories.
The Deerfield, Illinois-based concern said dealers decreased inventories by about $400 million in the third quarter. In the same period last year, they increased inventories by $800 million.
Apportionments of Caterpillar, a Dow component, fell as much as 6.5% in premarket trading on Wednesday, but they regained much of the losses as the Stock Exchange opened. Caterpillar closed up 1.2%.
“Our volumes declined as dealers reduced their inventories, and end-user demand, while outright, was lower than our expectations,” said Caterpillar Chairman and CEO Jim Umpleby.
Caterpillar’s sales in Asia-Pacific declined 13% in the third accommodate mainly because of the lower demand in China, the company said.
“Realistically this is what you wanted to see, you wanted to see them accept fast action,” said Rob Wertheimer, founding partner at Melius Research. “The worst thing you could have….is if you get too far behind the curve on size up up and then you have to cut later.”
“The trade war leads people to bring in inventory, buy a bit little extra [because they’re viewpoint] ‘who knows what’s going on, let’s make sure we stock up ahead of tariffs,’ and that’s coming back out of the economy beneficial now,” Wertheimer said on CNBC’s “Squawk Box.”
Shares of the trade bellwether are underperforming the broader market this year as as worldwide trade tensions continue to weigh. The stock is up 5% since January, compared with the S&P 500, which is up nearing 20%.