Caterpillar’s 2020 Outlook Adds More Gloom to Markets

Caterpillar backhoe excavators are displayed for sale at a dealership in Kentucky on Jan. 27.
Caterpillar backhoe excavators are displayed for sale at a dealership in Kentucky on Jan. 27. (Luke Sharrett/Bloomberg News)

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Caterpillar Inc., a worldwide barometer for manufacturing, is warning of more pain to come for the global economy in 2020.

The heavy-equipment maker is projecting that its profits for the year will trail analysts’ estimates by as much as $2 a share. The weak outlook comes just as markets are reeling from the worsening outbreak of the coronavirus, a slump in manufacturing activity and major cutbacks in spending.

“We expect continued global economic uncertainty to pressure sales to users in 2020 and cause dealers to further reduce inventories,” Chief Executive Officer Jim Umpleby said in a statement.

Caterpillar has been trying to cut costs and trim inventories as demand in some of its main markets trails production. The outlook signals further headwinds for machine sales, which fell the most in almost three years last month.

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The company’s fourth-quarter earnings statement was released before the start of regular trading in New York. Caterpillar shares slipped 1.9% to $132.75 in early trading.

Profit in the fourth quarter topped analysts’ estimates, with the company citing “strong cost control” as helping to offset its demand issues.

“We expect to be sort of flat to down 5% for our business in China, because of general market conditions, competitor positioning and so forth,” Chief Financial Officer Andrew Bonfield said in a telephone interview Jan. 31. “It’s a very competitive market, we were down slightly this year, even in an upmarket because of competition. So we got to get out there and fight.”

Bonfield said Caterpillar expects U.S. residential and non-residential construction to decline, while investment in state and local infrastructure will be stable. He also said capital spending in mining will continue to increase in 2020, but that the recovery has been “much more slow and steady,” as companies are “maintaining capital discipline.”

Caterpillar expects share buybacks in 2020 to be at a “similar level” to those in 2018 and 2019, Bonfield said.

The outlook clouds prospects for the company that reported adjusted fourth-quarter earnings of $2.63 per share, beating the $2.37 average of estimates compiled by Bloomberg.

“Strong cost control more than offset lower-than-expected end-user demand,” helping the company report better-than-expected fourth-quarter results, Umpleby said.

The company expects the bulk of the inventory drawdown to happen in the first half of the year, Bonfield said on an earnings call with analysts.

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