Rattled Investors Await Caterpillar With ‘Glass Half Empty’ View

(Bloomberg) -- After nine consecutive quarters of better-than-expected profit, Caterpillar Inc. still has some skeptics.

The stock of the economic bellwether is headed for its worst monthly performance since 2011 as investors await third-quarter results on Tuesday. Investors are looking at industrial earnings with a “glass-half-empty” mindset, according to Karen Ubelhart of Bloomberg Intelligence.

Among the things emptying that glass are worries that the full impact of U.S.-China trade frictions has yet to be felt at a time when many industrial customers may be reaching peaks in their growth cycles. Caterpillar, the world’s biggest maker of mining and construction equipment, said as recently as last month that the trade spat hadn’t yet dented sales.

During this earnings period, “there’s been a lot of companies that beat and raised and the market just doesn’t seem to care,” Stephen Volkmann, managing director of equity research at Jefferies LLC in New York, said by phone. “It’s all about whether we’re at the peak of the cycle right now.”

The Deerfield, Illinois-based company is expected to report third-quarter earnings of $2.85 a share excluding one-time items on Tuesday, based on the average of 23 analysts’ estimates compiled by Bloomberg. The company has posted earnings that topped analysts’ estimates in every quarter since mid-2016.

Shares in the manufacturer fell to the lowest closing price in a year on Monday. The stock plunged Friday after Honeywell International Inc. flagged potential costs in the “hundreds of millions of dollars” from higher Chinese and U.S. tariffs.

Rattled Investors Await Caterpillar With ‘Glass Half Empty’ View

At the start of earnings season, “people went in worried and now they are looking for the things that are negative,” Ubelhart said in a Bloomberg Television interview Friday. Caterpillar “is one of those cyclicals that people are worried about.”

Caterpillar’s earnings will come a day after Ford Motor Co. escalated its criticism of the Trump administration’s metals tariffs, which the automaker has said are taking a bite out of profit. Domestic hot-rolled coil -- the benchmark price for American-made steel -- has gained almost 30 percent in 2018 as the Trump administration implemented tariffs on imports.

Caterpillar said in July that would boost prices to offset as much as $200 million in costs brought on by tariffs.

Even with the recent share sell-off, Ubelhart expects global machinery demand to stay robust into 2019. The U.S. construction market continues to expand, commodity price gains support mining equipment sales and heavy truck production should accelerate as orders remain robust, she said in a note.

Caterpillar said Monday that worldwide machine sales in September rose 21 percent from a year earlier on a three month rolling-average basis. That compares with a 23 percent gain in the three months ended in August, as growth in construction-equipment sales slowed.

©2018 Bloomberg L.P.