Caterpillar Biggest Miss in at Least a Decade Darkens Gloom

(Bloomberg) -- Caterpillar Inc. just reported the biggest quarterly profit miss since at least the beginning of 2008, sending its shares plunging.

The construction and mining equipment maker, widely considered a bellwether for the global industrial economy, reported a fourth-quarter profit that lagged analysts’ average estimate by 44 cents a share. According to Bloomberg data, this is the biggest miss reported by the company since at least the first quarter of 2008, which is the farthest the data goes back.

Caterpillar Biggest Miss in at Least a Decade Darkens Gloom

“This miss marks a first for Caterpillar in ten quarters and we believe could be a point for reset for investors who have been looking for a crack in growth for over a year now,” Jefferies analyst Stephen Volkmann wrote in a note to clients, noting that operating margins were weaker than expected on higher material, labor and freight costs.

Caterpillar shares sank as much as 9.3 percent. It was the worst performer in the S&P 500 Machinery Industry Index, which fell as much as 3.8 percent. Other decliners in the 14-member gauge included Deere & Co., Cummins Inc., Parker Hannifin Corp. and Flowserve Corp., each of which dropped more than 2 percent.

Shares of Boeing, which along with Caterpillar has been a favorite investor proxy for U.S.-China trade tensions, fell 1.8 percent. Caterpillar said retail sales for Asia-Pacific showed a decline in December, though it followed two strong years. For 2019, the company expects total excavator sales in China to be about flat with last year.

“We note that Caterpillar provided conservative initial guidance to commence last year, so we wonder if the company is setting a relatively low bar again to start 2019,” Buckingham Research Group analyst Neil Frohnapple wrote in a note to clients. The company needs to “adequately address the fourth-quarter profit miss on the earnings call and whether the factors that caused the shortfall are transitory,” he said.

Top things that analysts and investors will be watching during the earnings call scheduled for 11 a.m. include details on the profit miss, the economic weakness in China, impact from the U.S. trade war, and the state of the construction and mining industries.

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