Caterpillar Stock Dip Even After Hitting Earnings Targets

Caterpillar Stocks
Caterpillar logo is pictured at the 'Bauma' Trade Fair (Photo: Reuters)

Despite reporting results that were higher than initially forecasted, Caterpillar stocks still dropped for the second straight quarter. Investor sentiments were likely dissuaded by the company's rising costs, which had hit its margins for the quarter. The world's largest heavy equipment manufacturer and distributor has also recently seen a slowed growth in its sales in the Asia Pacific region, most particularly in China.

Following its earnings report, shares of the company dropped by as much as 4 percent. The fall had nullified the stock's initial rise due to the tax gains. As of yesterday, April 24, the company's shares were trading at US$138 per share. Caterpillar stocks are considered to be a major indicator for the United States' economic activity and rapid fluctuations more often than not does influence global market sentiments.

Caterpillar previously mentioned that it would likely experience a cool down in sales in China following two straight years of rapid growth. The company's chief financial officer, Andrew Bonfield, mentioned during the earnings call that they had seen a stronger-than-expected activity in the region at the start of the year, but the activity had remained flat since then.

The company's sales in China currently accounts for up to 10 percent of its total sales. Caterpillar sees China as a critical market for growth, especially given that it is currently the world's largest commodities importer. Bonfield mentioned that they still have a lot of optimism towards their prospects in China as its economy is starting to stabilize.

According to market analysts, Caterpillar currently does have a lot of exposure in China with its construction industry business. However, that same business has produced a rather disappointing number when it came to its margins and revenues. The company's operating margin in its construction equipment business fell by as much as 18.5 percent, mainly due to the increased manufacturing and freight costs.

Caterpillar's construction revenues for the first quarter fell below the expected US$5.95 billion to US$5.87 billion. However, overall revenues still grew by 5 percent to US$13 billion, which beat previous estimates. The growth was largely attributed to the company's sales in North America, which is currently its biggest market.

Following a slew of possible tax reforms, Caterpillar updated their 2019 profit forecasts to a range of US$12.06 to US$13.06 per share. This is a marginal increase from its earlier forecast of US$11.75 to US$12.75 per share. All in all, the company still managed to maintain its 2019 earnings targets. 

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