Caterpillar posts drop in Q3 sales and earnings, guides lower

Caterpillar posted lower sales and profits for its most recent quarter on the back of a drawdown in stockpiles by dealers and softer demand and marked down its full-year profit guidance.

"Our volumes declined as dealers reduced their inventories, and end-user demand, while positive, was lower than our expectations," said Caterpillar chairman and chief executive officer, Jim Umpleby.

"We remain focused on executing our strategy and continuing to achieve our Investor Day targets for margin improvement and free cash flow."

For the three months ending in September, the manufacturer reported an approximately 6% decline in sales to reach $12.8bn, for earnings per share of $2.66 (consensus: $2.87).

Regarding the company's fourth quarter outlook, Umpleby added:"In the fourth quarter, we now expect end-user demand to be flat and dealers to make further inventory reductions due to global economic uncertainty."

Due to its expectations now for modestly slower full-year sales growth, management also lowered its estimated range for earnings per share from the low end of $12.06-13.06 to $10.90-11.40.

However, there was a silver lining in the outlook, according to Umpleby, who said that due to Caterpillar's improved lead times, which combined with dealer's reduced inventories meant that the manufacturer would be able to "respond quickly to positive or negative developments in the global economy in 2020".

"Shares slipped about 6% in pre-market trading at one stage before paring losses to trade higher at one point and then turning [about] 1% weaker at send time. This is not a stock that has been knocking it out the park, so there is not that far to fall on a miss as some, with investors showing concerns about falling manufacturing PMI figures and slowing growth in China and elsewhere for over a year now," said Neil Wilson, chief market analyst at Markets.com.

"The question for Cat now is whether this latest downswing in the PMI data marks the trough or if there is further to run to the downside."

For their part, analysts at Bank of America-Merrill Lynch reiterated their 'buy' recommendation for the shares, telling clients that dealer inventories and backlog could be "stabilising" and that retail sales growth just accelerated in September.

As of 1329 BST, shares of Caterpillar were down by 0.55% to $132.96.