The trade war is stinging Caterpillar, and its outlook is dimming

Caterpillar, stung by the trade war and global economic slowdown, posted a surprise drop in third-quarter profit as sales slumped in nearly every region around the world.

The world’s largest maker of construction and mining equipment warned on Wednesday that more pain is coming. Caterpillar, a bellwether for the global economy, dimmed its 2019 earnings outlook, driving its stock 4% lower in premarket trading.

Caterpillar blamed the gloomy results on a decline in demand from dealers that supply the company’s machinery to customers. Dealers slashed their inventories by about $400 million during the quarter, a sharp swing from a year earlier when they boosted inventories by about $800 million.

The company’s revenue dropped 6% to $12.8 billion, significantly missing Wall Street’s expectation for a slight increase. Per-share profits unexpectedly declined 8%.

CEO Jim Umpleby expects these trends to continue.

“In the fourth quarter, we now expect end-user demand to be flat and dealers to make further inventory reductions due to global economic uncertainty,” Umpleby said in a statement.

Caterpillar now anticipates full-year sales will be modestly lower and it significantly dropped earnings guidance. The company said it is focused on maintaining a competitive and a flexible cost structure, including “managing production levels.”

Caterpillar said third-quarter sales decreased in all three of its divisions, as well as in all regions except Latin America, where they were flat.

Not surprisingly, the Asia-Pacific region, the epicenter of the US-China trade war, fell by the largest margin. Sales there declined 13%, driven by lower demand in China for construction equipment. China recently reported its weakest economic growth since 1992.

Caterpillar’s sales in North America dipped by a more modest 3%.

Like other manufacturers, Caterpillar has been hit by a slowdown in the mining industry. Caterpillar’s resource industries division suffered a 12% decline in sales. The company said mining customers “are cautious due to economic uncertainty.” Caterpillar also pointed to weakness in the coal industry.

Caterpillar’s results come a day after Hasbro revealed that the trade war is eating into its profit and warned of potential price hikes. The toymaker’s stock plummeted nearly 17%, marking its worst day since December 2000.