Caterpillar shares take a tumble after earnings disappoint

The heavy machinery manufacturer saw its share price fall after it acknowledged that material costs are set to rise due to an increase in steel prices and tariffs.

Caterpillar (NYSE:CAT) saw its share price slip 7% after its 2018 outlook came in shy of analysts’ estimates. In its third quarter (Q3) results, the company offered an adjusted profit per share range of $11 to 12, with the lower end of that range falling short of the $11.65 earnings per share (EPS) that many expected.

The heavy machinery manufacturer’s share price was also impacted by the company admitting that it expects material and freight costs to increase this year, with material costs rising primarily due to hikes in steel prices and tariffs. The impact of rising tariffs for Q3 was about $40 million, the company said in a press release.

The fall its share price sustained comes after Caterpillar posted ‘the best [Q3] profit per share’ in the company’s history, CEO Jim Umpleby said. ‘Our global team continues to do excellent work focusing on our customers’ success and executing our strategy for profitable growth.’

US-China trade war

Despite the company’s EPS results coming in 46% higher when compared to the same period a year ago and the business generating revenues of $13.51 billion its share price has suffered at the hands of an uncertain trade relationship between the US and China.

US President Donald Trump has slapped tariffs on foreign steel and aluminium with the intent of safeguarding American jobs and protecting domestic steel producers.

But for companies like Caterpillar, which have witnessed a more than 30% increase in the price hot rolled steel in the last 12 months, forcing the company to reduce expenditure and hurting its outlook for the remainder of the financial year.

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