Caterpillar, the world's largest construction equipment manufacturer, has reported a significant drop in its Asia-Pacific sales as a direct result of the trade war between China and the United States.
Despite having called a temporary ceasefire, the negative effects of the dispute still linger, cutting into the company's profits, which have significantly affected its stock prices.
The American Fortune 100 company, which specializes in the design, development, and engineering of heavy machinery, reported on Wednesday that it saw a 22 percent drop in its Asia-Pacific sales for the quarter. In its latest earnings call, the company revealed that it had missed its earnings forecast for the quarter, a first for the company in over a decade.
Given its less-than-expected overall revenues and earnings, the company announced that it will likely hit profits for the rest of the year at the lower end of its initial outlook for 2019. Following the company's earnings call, Caterpillar share prices plummeted by as much as 4 percent in early trading.
The stock, which is one of the biggest components in the Dow Jones Industrial Average, also managed to drag the entire market lower at the end of the trading day.
According to the company, its less than stellar performance was attributed to the increase in manufacturing costs. This was apparently due to several factors, including the recently imposed retaliatory tariffs by both the United States and China and the increasing labor expenses globally.
Caterpillar previously warned shareholders of a possible weakness in profits due to the slowing global economy and weak demand in Asian countries such as China.
Apart from its decreased sales in China, Caterpillar also saw a drop in its sales in countries such as Europe, Africa, and the Middle East. The company's sales number in those regions dropped by almost 5 percent compared to the same period last year.
In its home turf, Caterpillar managed to keep its numbers at acceptable levels. Sales in North America were a notable exception in the company's otherwise weak earnings.
North American revenues had increased by 28 percent compared to a year ago, contributing to the company's overall 5 percent increase in sales. Caterpillar reported an 11 percent slump in sales for its oil-and-gas equipment due to the slowing activities in the Permian Basin.
Caterpillar expects the activities on the Permian Basin to ramp up by the end of the year.
The region is one of the main sources of US shale and the source of the country's recent oil production boom. Caterpillar had managed to capitalize on the boom by being the main supplier of heavy equipment for the extraction efforts. If activity in the region does not recover, it could spell trouble for the company, especially given its sales slump in other parts of the world.
