Caterpillar shareholders flee as it predicts China slowdown for 2019

Digger manufacturer Caterpillar’s shares were down eight per cent in US trading this afternoon after it announced “modest” sales increases.

Sales were hit by weakness in its key Chinese market in the final quarter, causing investors to flee.

The figures

Adjusted profit-per-share for 2018 was $11.22 (£8.52), up 63 per cent, while revenues were up 20.2 per cent at $54.7bn. But the dramatic increase in profits was boosted by recovering from a hit in 2017 from restructuring costs, pension expenses and the impact of US tax reform.

Read more: Chinese economy grew at slowest rate since 1990 in 2018 as hopes for US trade deal persist

Meanwhile, cash flow was down 4.8 per cent to $7.9bn at the end of the year.

Why it is important

Figures for the year looked strong even when adjusted for 2017’s expenses, but investors were more bothered about projections for next year. Caterpillar expects 2019 profit to increase to a range of $11.75 to $12.75 per share, compared to an expected median of $12.73 from a survey of analysts by Reuters.

An ominous warning about a slowdown in China also spooked shareholders. Chinese sales are expected to be roughly flat, compared to 40 per cent growth last year.

China has invested monumentally in infrastructure projects in recent years, but announced a cooling in its fast-growing economy earlier this month which has already hit US firms like Apple.

What Caterpillar said

“In 2018, Caterpillar achieved record profit per share and returned significant levels of capital to shareholders,” said Caterpillar chairman Jim Umpleby. “Our global team remained focused on serving our customers, executing our strategy and investing for future profitable growth.”

Read more: Asian markets boosted as US officials land in China for first round of fresh trade talks

What analysts said

Conor Campbell, analyst at Spreadex, said: “That one of the reasons for the miss [of its earnings target] was the now familiar sight of the sector-disregarding slowdown in China only made matters worse, reminding investors of just what is at stake with the resumption of the US-Sino trade talks this week.

“The construction firm’s disappointing fourth-quarter results was an awful way to kick off a hugely important period for company updates, and translated to a woeful start for the Dow Jones, which swiftly shed around 350 points.”