Market Analysis

Caterpillar’s share price slumps as China slowdown hurts revenues and profit estimates

Caterpillar’s share price fell close to ten percent on Monday, as the equipment manufacturer missed forward guidance expectations and reported worse than expected company earnings during the four fiscal-quarter. The company blamed the current slowdown underway in the Chinese economy as a major reason behind the earnings report miss. Caterpillar’s share price dropped immediately after the report was released, as investors often use Caterpillar’s quarterly performance as a bellwether for the overall global economy.

The company said it had started to feel the effects of the ongoing Sino-U.S trade war, with higher material and freight costs being reported due to trade tariffs. The world’s largest heavy good manufacturer also said that volatile oil prices and unfavourable currency effects brought down Caterpillar’s order book in the fourth quarter by about $800 million.

Investors were clearly worried as Caterpillar posted fourth-quarter revenue of $14.34 billion, which was below the most analysts estimates. The major miss in the report came in the companies adjusted earnings, which came in at $2.55 per share against $2.99 per share that was originally forecasted.

Caterpillar also missed in its forecasts for the rest of the year and said it now expects 2019 profits to increase to by $12.75 per share at best and $11.75 per share in the worst case scenario. Most analysts had been expecting the equipment maker to announce forecasted profits of not less than $12.73 per share for 2019.

An overall decline was reported in construction equipment sales in China during the latest quarter, as Chinese companies scaled back on equipment sales in the mining and oil and gas industry. Caterpillar also said an increase in the provision for credit losses and write-offs in its financial products segment also cut into fourth-quarter earnings.
The Illinois based company tried to allay investors fears, saying that it expects to see other countries benefitting from the Chinese slowdown, as manufacturing companies seek out cheaper Asian bases outside of China, such as Indonesia and Vietnam. Caterpillar noted North America as a bright spot, with construction-related sales in the region increasing by 17 percent in the quarter from a year earlier.


Caterpillar Daily Candlestick Chart | Source: ActivTrader Platform

Caterpillar Daily Candlestick Chart | Source: ActivTrader Platform


Looking at the technicals for Caterpillar’s share price on a daily chart, it is clear that traders have used the early 2019 rebound as another opportunity to short the stock in line with the bearish fundamentals of the global economy.

Caterpillar’s share price has officially been in a bear market since October 2018, with three failed attempts to trade back above its key 200-day moving average.

Price is now trading within a symmetrical triangle, with the $100.00 level the strongest form of support below trendline support. A clear break below the triangle pattern and the key October trading-low would likely take the stock towards the $80.00 to $70.00 range over the medium-term.


Written by Nathan Batchelor, External Analyst


*The information provided does not constitute investment research. The material has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and as such is to be considered to be a marketing communication.

All information has been prepared by ActivTrades PLC (“AT”). The information does not contain a record of AT’s prices or an offer of or solicitation for a transaction in any financial instrument. No representation or warranty is given as to the accuracy or completeness of this information. Any material provided does not have regard to the specific investment objective and financial situation of any person who may receive it. Past performance is not a reliable indicator of futures performance. AT provides an execution-only service. Consequently, any person acting on the information provided does so at its own risk.