Caterpillar Inc. (CAT) shares are plummeting despite a positive report on third-quarter earnings as the market homes in on macro factors that are clouding guidance.
Shares of the Peoria, Illinois-based industrial giant are down around 7% in pre-market trading, a decline that would add to a nearly 26% drop in Caterpillar's share price from its 52-week high of $173.24 in late January.
Reports of supply chain and manufacturing issues are feeding market jitters and Caterpillar's guidance remains stagnant.
"Manufacturing costs were higher due to increased material and freight costs," Caterpillar reported. "Material costs were higher primarily due to increases in steel prices and tariffs. Freight costs were unfavorable primarily due to supply chain inefficiencies as the industry continues to respond to strong global demand."
The issues that are out of the hands of Caterpillar executives are reinforcing sour sentiment on the cyclical stock.
The market outlook is not aided by the company's unchanged guidance for adjusted earnings per share, which Caterpillar puts in a range of $11.00 to $12.00 for 2018.
The market seems to have been holding out hope for strong guidance numbers from industrial companies, as industrial contemporary 3M Co. (MMM) is being similarly punished for its weaker-than-expected guidance.
To be sure, Caterpillar CEO Jim Umpleby did his best to highlight the strong third quarter the company recorded, which was a stark contrast to 3M.
"This was the best third-quarter profit per share in our company's history," he said. "Our global team continues to do excellent work focusing on our customers' success and executing our strategy for profitable growth."
Caterpillar did report a beat on both top- and bottom-line estimates in the quarter. It posted earnings per share of $2.86, besting the FactSet consensus by $0.03 a share, and its revenue of $13.5 billion beat estimates by $240 million.
Caterpillar also highlighted increased fortification in operations and backlogs to offset the macro impacts on the company.
"In the fourth quarter, price realization, operational excellence and cost discipline are expected to more than offset higher material and freight costs, including tariffs," the company reported.
The company will attempt to highlight these positive factors at 11:00 a.m. ET in an earnings presentation that could help stem the bleeding.
