"Production across much of the company has been lowered,
resulting in temporary shutdowns and layoffs. Lower production
will continue until inventories and dealer order rates move back
in line with dealer deliveries to end users. The reduction in the
profit outlook is in line with the lower sales and revenues
outlook, partially offset by the gain on the sale of a majority
interest in our third party logistics business."
This is a direct quote from Caterpillar's (CAT) earnings press
release this morning as the company beat third quarter earnings
estimates, but came a tad bit shy of revenue expectations.
Importantly, the mining and construction equipment maker guided
lower, citing economic reasons.
Caterpillar has been for a long time a direct play on the global
economic growth story, particularly the part centered on China
and the other emerging markets. But that narrative seems to have
lost some of its luster lately, as China struggles to stabilize
its economic growth profile. As a result, not just Caterpillar,
but marquee names in different industries had to re-set
expectations, as saw with Yum Brands (YUM), FedEx (FDX), and Nike
Many believe that the worst may be behind China and the country
may be on track for steadier growth from 2013 onwards. But it's
far from clear at this stage whether the big infrastructure type
spending by the Chinese government, a key driver for players like
Caterpillar, will come back in sufficient volume to put them back
in the limelight.
Given the barrage of third quarter earnings reports coming out
this week, we will likely see more management teams describe
business conditions as Caterpillar did this morning and some of
the others did in recent days. With more than 150 S&P 500
companies reporting results this week, we will cross the halfway
mark by the end of this week. Results have been less than
inspiring thus far, with the Tech sector particularly off-color.
It will be interesting to see if Apple (AAPL), which alone
accounts for one-fifth of the sector's earnings, will buck the
trend or add to the sector's woes. We will have to wait till
Thursday after the close to find out.
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