Worm Turns

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What's going on?

The earth moved beneath the king of the diggers on Tuesday: construction equipment manufacturer Caterpillar’s stock fell 7% after it flagged a crumbling road ahead (tweet this).

What does this mean?

Caterpillar had a better-than-expected three months – its third-quarter profit was actually its highest ever. But investors couldn’t look past Caterpillar still grappling with higher costs, which’ll weigh on profits next quarter and beyond. Those are principally transport-related: not only is the company forking out for higher freight costs to bring in raw materials and ship out orders to global customers, but it’s also paying tariffs, thanks to the US’s trade tussles with other countries. Caterpillar’s hoping to raise its prices to offset those costs, but for last quarter at least, price hikes couldn’t keep pace.

Investors were expecting Caterpillar’s profit to flutter up – but they also thought the company would raise its annual forecast, just like last quarter. So, although Caterpillar didn’t lower its forecast, no news wasn’t good news – leaving investors feeling as yellow-bellied as one of the company’s iconic dump trucks.

Why should I care?

For markets: Misery loves company.

Caterpillar’s an industrial bellwether, meaning investors look to it for clues about what’s going on at other mega-manufacturers. Shares of agricultural equipment maker Deere accordingly fell 3% on Tuesday. The company’s likely to face similar pressures from rising costs to Caterpillar – but they could bite Deere even harder, since it’s already on a mission to slash costs following a fallow previous quarter.

The bigger picture: The (peanut) butterfly effect bites.

US companies focused on their domestic markets had a rougher time of it, but McDonald’s and Harley-Davidson (a high-profile trade war casualty) had the rest of the world to thank for picking up the slack left by America in their last quarters. International sales growth at McDonald’s helped it beat estimates overall on Tuesday, sending its stock up 7%. And European sales rose at Harley even as US sales dropped last quarter.

Originally posted as part of the Finimize daily email.

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