Caterpillar axes sales forecast, warns factors depressing orders could linger

Shares in world’s largest heavy machinery maker Caterpillar (NYSE:CAT), the best-performing industrial stock so far this year, were slightly down in pre-market trading Tuesday after the firm’s reported revenue that fell short of estimates and lowered its full-year guidance.

The Peoria, Illinois-based reported earnings, adjusted for non-recurring costs, of 85 cents per share on revenue of $9.16 billion, higher than Wall Street expectations of 75 cents per share.

While the equipment maker beat analysts predictions, it had to cut its earnings forecast for the year. CAT is now projecting full-year earnings of $3.25, excluding restructuring costs. This compares with its prior guidance for $3.55 a share, though it is still slightly better than the $3.50 a share CAT earned in 2015.

For revenue, the company now expects $39 billion, compared with its prior range of $40 billion to $40.5 billion.

Caterpillar shares, which had climbed 9.3% in the past three months, dropped 2.1% to $84.17 in pre-market trading.

“While we are seeing early signals of improvement in some areas, we continue to face a number of challenges,” said outgoing chief executive Doug Oberhelman. He also noted that economic weakness throughout much of the world persists. “As a result, most of our end markets remain challenged,” he said in the statement.

Despite ongoing woes, the company added it was encouraged by the recovery of most commodity prices important to its business, as they have improved from the lows earlier in 2016.

Caterpillar’s performance is often seen as a gauge of the health of the global economy, as its machines are huge, expensive, and used in different kinds of projects to which companies and governments are only likely to commit if they’re confident in the economic outlook and their financial standing.

So the fact that the company posted a $1.8 billion decline in sales and revenue is not a very encouraging sign. It also said that orders for new equipment have not increase and that sales for construction equipment in particular were lower than expected in the second half of 2016. The situation, said CAT, could continue into 2017 on the back of global economic uncertainty, but it didn’t provide a sales forecast for 2017.