Caterpillar hurt by US-China trade war and shale slowdown

Posted at 8:30 AM, Jul 24, 2019
and last updated 2019-07-25 07:52:25-04

The United States and China are holding fire in their trade war. But Caterpillar is still feeling the pain.

Caterpillar said Wednesday that sales in its Asia-Pacific unit plummeted 22% from a year ago, largely because of weak demand in China. The company’s overall revenue and earnings missed forecasts. Caterpillar also said it now expects profit for 2019 will be at the lower end of its outlook.

Shares of Caterpillar, one of the biggest components in the Dow, plunged 4% in early trading. That helped drag the overall market lower.

The equipment maker said that manufacturing costs were higher because of factors including tariffs and labor expenses.

A slowing global economy is also continuing to weigh on Caterpillar, which first warned of weakness in China back in January.

In addition to the slump in Asia, the company also said sales in its Europe, Middle East and Africa division fell 5% from the same period last year.

Sales in North America, mainly the United States, are still holding up strong — with one notable exception.

Revenue in North America rose 28% from a year ago, helping to lift Caterpillar’s total sales by 5%. However, Caterpillar said sales for oil-and gas-related equipment were down 11%, in part because of “lower demand for new equipment in the Permian Basin.”

That’s notable, because the Permian Basin is one of the hotbeds of the US shale gas revolution, an oil production boom that has helped America become less reliant on OPEC to meet its energy needs.

Caterpillar said it was hopeful that the oil and gas business would recover by the end of the year.

But with sales slumping around the rest of the world, trouble in one of its key business segments in the United States is the last thing Caterpillar needs.