CAT Caterpillar Inc

By Austen Hufford 

Caterpillar Inc. said tariffs and trucking rates were pushing up costs, and 3M Co. raised concerns about China's slowing growth, dragging down shares across the U.S. industrial sector.

Shares in Caterpillar fell 8.8% on Tuesday, and 3M's shares fell 6.4%. Shares in Harley-Davidson Inc. fell 4% after the motorcycle maker said it sold fewer Hogs in the third quarter than a year earlier. The S&P 500 Machinery index was down 4.3%.

Caterpillar said tariffs the Trump administration implemented earlier this year on foreign steel and aluminum made parts for the machinery it manufactures in the U.S. more expensive. Caterpillar tariff-related costs for the year would likely come in at the low end of the previous range of $100 million to $200 million it forecast. 3M, too, expects the tariffs to push up its costs by about $100 million.

3M also said sales of its face masks and other products in China were dropping as economic growth there cools. Caterpillar said on Monday that its sales in China in the three months through September were up 11% from a year earlier, compared with a 19% gain in the three months through August. China's economic growth of 6.5% in the third quarter was its weakest pace since the financial crisis.

"We see other signs of slowing in China, the automotive build rates are down significantly and that has a knock-on effect," 3M Inc. Chief Executive Michael Roman said. 3M Co. reported slower sales growth across most of its business lines in the third quarter.

3M and other manufacturers have raised prices to offset rising costs. Caterpillar said it would raise prices on most machines and engines by as much as 4% next year. United Technologies Corp., which makes Pratt & Whitney jet engines and Otis elevators, said on Tuesday it would continue to raise prices across its portfolio next year if tariffs were still in place.

"Ultimately, these tariffs can get all passed on the consumer in one form or another," United Technologies Chief Executive Gregory Hayes said.

The conglomerate said its third-quarter profit dropped 7% as higher costs offset an increase in revenue.

The share selloff belied some signs of strength for manufacturers. Caterpillar reported higher profit in the third quarter thanks to strong sales and its higher prices. Harley reported higher revenue and profit, beating expectations.

But investors recoiled from signs that manufacturers face trouble ahead. Some companies said high trucking costs and parts shortages have made it difficult to raise production. Heavy-duty truck maker Paccar Inc. on Tuesday said its margin was hurt by parts shortages in North America.

"The sharp increase in demand has led to supply chain challenges across the industry," Caterpillar said in a release.

Caterpillar reported adjusted earnings of $2.86 a share in its third quarter, above last year's $1.95, two cents higher than the $2.84 expected by analysts polled by FactSet, as higher prices and increase volume offset rising costs.

That's the narrowest beat for Caterpillar since it missed expectations by a cent in April 2016. Since that miss, reported results have been 29% higher than expectations, compared with 0.8% higher Tuesday.

The Deerfield, Ill.-based company reaffirmed its adjusted earnings per share guidance for the year of $11 to $12.

3M said sales fell 0.2% from a year earlier to $8.15 billion. The St. Paul-based company said it expects earnings for the year to be between $8.78 and $8.93 a share, down from the range of $9.08 to $9.38 a share it previously guided.

Milwaukee-based Harley, which also announced a recall on Tuesday of 238,300 motorcycles due to a clutch defect, said revenue from motorcycles and related products rose 17% in the third quarter from the year earlier to $1.12 billion. Analysts had predicted $1.07 billion.

Write to Austen Hufford at austen.hufford@wsj.com

(END) Dow Jones Newswires

October 23, 2018 11:51 ET (15:51 GMT)

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