Caterpillar Tumbles After Q3 Earnings Release, Sees Higher Costs Ahead Due To Tariffs

Shares of Dow Jones component Caterpillar Inc. CAT fell more than 8 percent Tuesday morning despite a top-and-bottom-line beat in its third-quarter report.

What Happened

Caterpillar said it earned $2.86 per share in the quarter on revenue of $13.5 billion, which was better than the $2.83 per share and $13.18 billion analysts were expecting. Operating profit for the quarter rose from $1.509 billion a year ago to $2.135 billion due to higher sales volume and favorable price realization.

Caterpillar cited higher manufacturing costs in the quarter due to increases in steel prices and tariffs. The company also said freight costs were unfavorable due to supply chain inefficiencies while SG&A and R&D costs rose as part of the company's strategic growth initiatives.

Why It's Important

Taking a closer look at Caterpillar's performance by segment and geographic regions shows the earnings report was "good", Brian Langenberg told CNBC. However, Caterpillar's stock was expensive heading into Tuesday's release as part of a broader theme of investor enthusiasm for growth stocks.

While Caterpillar has satisfied investor demands for growth, as evidenced by a 40 percent growth in earnings in the third quarter, the level of growth moving forward is likely to slow and will face tougher comparisons.

What's Next

Caterpillar reaffirmed its full-year 2018 EPS guidance of $11 to $12 versus the Street's estimate of $11.66 per share. The company also said it expects the impact of tariffs to be at the low end of its previously guided range of $100 million to $200 million.

The company told its dealers in the third quarter to expect a 1 to 4 percent price increase on machines and engines in the first quarter of 2019.

Shares traded down 8.5 percent to $117.70 at time of publication.

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