Caterpillar deepened fears of a US economic slowdown on Friday when it reported a sharp fall in profits, missing Wall Street estimates, due to weakness at its North American operations.
The heavy equipment and truck engine maker, a bellwether for the US economy, saw its shares fall nearly 10 per cent during the day, despite recording record sales for the quarter and issuing an upbeat assessment of its international operations.
The stock, which had reached an all-time high on Thursday, ended 4.4 per cent down at $83.20, contributing to a 1 per cent slide in the Dow Jones Industrial Average index.
The unexpectedly weak performance of Caterpillar’s US operations come amid growing worries that the problems in the domestic housing market could spill over to the rest of the economy.
The company admitted the 21 per cent fall in profits was “disappointing” and blamed it on problems in the diesel truck market, weakness in US sales of heavy machinery, higher material costs and continued disruptions to its supply chain.
However, the Illinois-based group boosted its forecast for full-year sales, saying that its international operations, which account for about half of its turnover, would grow 25 per cent this year.
It reaffirmed its target for full-year profit but said it had “more work to do on costs” and hinted that it might rein back capital expenditure.
Caterpillar’s mixed outlook reflects the increasing discrepancy between a slowing US economy and booming international markets.
A number of large US manufactures such as General Electric, Honeywell and Whirlpool, the white goods maker that also reported results on Friday, have been relying on exports to offset a slowdown in the domestic market.
The US manufacturing sector has been weighed down by a 20 per cent reduction in house building, partly offset by rising non-residential activity, and weak demand in the auto sector.
However, analysts said the higher-than- expected June report of the ISM index of manufacturing activity suggested that domestic business conditions were improving, while overseas sales remained strong.
In the three months to June, Caterpillar reported net profits of $823m, compared to $1.04bn in the same period last year. Earnings per share were $1.24, well below analysts’ expectations of $1.49 per share. Sales rose 7 per cent to a record $11.36bn in the June quarter, with full-year guidance of $44bn at the top end of its existing range.