By Austen Hufford | WSJ.COM
A growing number of industrial companies have said they are making fewer sales in China, threatening a strong three-year run for U.S. manufacturers. Caterpillar has said that up to 10% of its sales are made in China.
Like other manufacturers, Caterpillar has also raised prices to offset rising transportation and material expenses. Some of those higher costs are a result of U.S. tariffs on foreign goods including steel and aluminum.
“Material costs and freight were adverse and worse than we were expecting,” Caterpillar Financial Chief Andrew Bonfield said on Monday in an interview.
Caterpillar’s shares fell 5.5% in premarket trading. The company said it expects to make a profit of $11.75 to $12.75 a share in 2019, below what analysts were expecting. Caterpillar said it expects a modest increase in revenue.
Caterpillar said that lower demand in China is leading to declining sales in Asia and that the company expects the overall market for excavators in China to be largely flat this year.
Caterpillar said costs related to tariffs came in close to the bottom end of the $100 million to $200 million range it had expected for 2018.
The company has said it plans to raise prices between 1% and 4% in 2019 on most of its machines and engines to offset higher costs. Other manufacturers have also said they raising prices to cover higher costs. Caterpillar said Monday it benefited from these higher prices, primarily in its construction machinery business.
The Deerfield, Ill.-based company said sales of its excavators, bulldozers and other equipment rose 12% to $13.6 billion in its fourth quarter.
Caterpillar reported adjusted earnings of $2.55 a share in the quarter, above last year’s $2.16 but below analyst expectations of $2.99, according to surveys by Refinitiv.
It was the first time Caterpillar fell short of expectations for its adjusted earnings-per-share since the quarter ended in March 2016, and the largest percentage miss going back to at least 2014, according to FactSet data.
Total sales, including revenue from financial products, rose 11% to $14.34 billion, compared with analyst expectations of $14.33 billion.
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In all, the company reported a fourth-quarter profit of $1.05 billion, or $1.78 a share, compared with a loss of $1.3 billion, or $2.18 a share, a year earlier. The losses a year earlier were driven by the impact of changes to U.S. tax laws.