Caterpillar Shares Sink on Good-as-It-Gets Earnings Guidance

(Bloomberg) -- Caterpillar Inc. began the day euphorically, with shares rallying as the machinery giant beat earnings estimates and raised its own forecast. That all changed when management signaled the first quarter might be as good as it gets.

In its earnings statement, the biggest maker of construction and mining equipment lifted its 2018 profit projection by as much as 24 percent and flagged continued strength for North America construction and Chinese infrastructure. But on the call that followed, Chief Financial Officer Brad Halverson said first-quarter adjusted profit per share “will be the high watermark for the year.”

Shares, which had gained as much as 4.6 percent, dropped as much as 5.8 percent in the biggest intraday swing in almost eight years. At 1:05 p.m. in New York, they were down 5.4 percent.

While the prospect of costs rising faster than prices will restrain earnings growth, Chief Executive Officer Jim Umpleby said he isn’t concerned about a peak in the growth cycle.

“Obviously there was some disappointment in terms of the reasoning of how margins are expected to play out next three quarters of the year,” Matt Arnold, an analyst at Edward Jones & Co., said by telephone. “It was an appropriate amount of conservatism as you realize there’s significantly higher input costs like steel to deal with.”

Still, Caterpillar is forecasting benefits from a broadening recovery in mining and construction. The outlook comes after worries of a trade war at the start of the year caused shares in the company to have their worst quarterly performance since 2015.

The Deerfield, Illinois-based manufacturer now expects adjusted per-share earnings for 2018 of $10.25 to $11.25. That compares with the $8.25 to $9.25 range projected in January. Any potential impacts from future geopolitical risks and increased trade restrictions have not been included in the outlook.

The International Monetary Fund last week left its forecasts for global growth this year and next at the 3.9 percent it estimated in January. Beyond that horizon, it was more pessimistic, projecting global growth will fade as central banks tighten monetary policy, the U.S. fiscal stimulus subsides, and China’s gradual slowdown continues.

--With assistance from Vivian Li Brandon Kochkodin and Andrew Mayeda

To contact the reporter on this story: Joe Deaux in New York at jdeaux@bloomberg.net.

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Joe Richter

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