Shares of Caterpillar dropped 7 percent after it gave disappointing 2018 guidance and management pointed out costs were rising because of tariffs.
The company reiterated its prior 2018 adjusted earnings guidance to range of $11 to $12 per share, but Wall Street expected the company to raise that forecast. The lower range of that forecast fell short of the $11.65 EPS estimated by analysts, according to Refinitiv.
"Manufacturing costs were higher due to increased material and freight costs. Material costs were higher primarily due to increases in steel prices and tariffs," the company stated in a press release. "Freight costs were unfavorable primarily due to supply chain inefficiencies as the industry continues to respond to strong global demand."
Later in the release, the company said the impact of tariffs for third-quarter material costs was about $40 million.
"For the full year of 2018, we expect the impact of recently imposed tariffs will be at the low end of the previously provided range of $100 million to $200 million," the company said.
The stock fell even as the big machinery exporter said 2018 profit per share hit $2.88, a third-quarter record. After adjusting for restructuring costs and a tax benefit to adjust deferred balances, adjusted earnings per share in the third quarter of 2018 was $2.86, above the $2.85 expected by analysts polled by Refinitiv.
The EPS results are 46 percent higher than third-quarter 2017 results of $1.95 per share. Revenues of $13.51 billion topped analyst expectations of $13.29 billion, according to Refinitiv.
"This was the best third-quarter profit per share in our company's history," said Caterpillar CEO Jim Umpleby. "Our global team continues to do excellent work focusing on our customers' success and executing our strategy for profitable growth."
But investors focused on the 2018 forecast, which analysts say may have been boosted by a tax benefit.
Caterpillar's stock has slid in 2018 as concerns over the trade relationship between the United States and China persist. The company's stock is down 15 percent in October even before the company disclosed its earnings.
Seven months into the U.S. tariffs on imported aluminum and steel, Caterpillar is among several large American manufacturers trying to keep a lid on expenses to cope with a 36 percent rise in the price of hot rolled steel over the past year.
The rising costs, coupled with a tit-for-tat tariff war with China, have tarnished earnings outlook for big industrial companies with exposure to overseas markets. In announcing the metals tariffs in March, President Donald Trump argued prior trade trends "destroyed" U.S. steel and aluminum companies.
"People have no idea how badly our country has been treated by other countries. By people representing us who didn't have a clue," Trump said at the time.
