Construction machinery company Caterpillar said in its quarterly earnings report Monday that demand for its equipment in China declined in the fourth quarter, a bad omen for the global economy from the industrial powerhouse.
"Sales in Asia/Pacific declined due to lower demand in China, partially offset by higher demand in a few other countries in the region," the company said in its earnings press release. "Unfavorable currency impacts also contributed to the sales decline."
Caterpillar, one of the largest equipment manufacturers in the world, is considered a bellwether for global trade given the company's exposure to overseas markets. Caterpillar gets 59 percent of its sales from outside of the U.S. and nearly a quarter of its revenue from the Asia Pacific region, according to figures form Goldman Sachs last year.
News of declining sales in China, the world's second-largest economy, are likely to weigh on other globally exposed equities. The country's benchmark Shanghai Composite is down 27 percent over the past 12 months.
The company also issued forward guidance range that fell short of Wall Street's earnings expectations on the lower end. It expects earnings per share for December 2019 in a range between $11.75 and $12.75 versus FactSet consensus expectations of $12.73.
The stock fell more than 5.5 percent in premarket trading Monday. Dow Jones Industrial Average futures fell to new lows after Caterpillar's comments.
"Our outlook assumes a modest sales increase based on the fundamentals of our diverse end markets as well as the macroeconomic and geopolitical environment," Caterpillar Chairman and CEO Jim Umpleby said in the press release. "We will continue to focus on operational excellence, including cost discipline, while investing in expanded offerings and services to drive long-term profitable growth."
The Illinois-based company's role as a global manufacturing leader can result in big swings to the major U.S. stock indexes. For example, when Chief Financial Officer Brad Halverson said last April that the company's first-quarter adjusted profits per share would be the "high-water mark," Caterpillar shares sank 6.2 percent and helped drag the Dow Jones Industrial Average down more than 400 points.
Caterpillar said total sales for its Construction Industries segment were $5.705 billion in the fourth quarter of 2018, a 7.7 percent increase from the same period one year ago. The company reported total sales of $14.3 billion in the fourth quarter and $54.7 billion for the full year; earnings per share of $2.55 fell well short of expectations of $2.99 per share.
Caterpillar will host a earnings call at 11 a.m. ET, when company management will detail its results and 2019 outlook. It will also field questions from Wall Street analysts.
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