Construction and mining equipment maker Caterpillar has cautioned that declining property development amid strict Covid curbs in China could hit demand in one of its key markets.
The Deerfield, Illinois based-firm warned demand was poised to fall below pre-Covid levels. Caterpillar shares declined 3% to $207 in afternoon trade, as analysts expressed disappointment over the company’s current-quarter margin forecast.
“The 10-ton and above excavator market in China was very strong in 2020 and 2021. We now anticipate this market will be slightly lower than 2019 levels (this year),” chief executive Jim Umpleby said on a post-earnings call.
China’s “zero Covid” policy to combat the Omicron variant has triggered fresh lockdowns, shutting factories and hurting sales of companies such as General Electric and 3M in the first quarter.
The stringent policy also hit Caterpillar, which gets about 5-10% of its total revenue from the country. “The lockdowns could weigh on CAT results in China in the second quarter,” Edward Jones analyst Matt Arnold said.
The company, gained, benefitted from demand elsewhere. Sales jumped across regions, with the exception of Asia-Pacific, buoyed by price increases as well as higher mining and construction activity.
“Mining activity will continue to increase,” chief financial officer Andrew Bonfield said in an interview. Total operating costs in the first quarter rose 16.5% to $11.73 billion.
The company has managed supply-chain challenges and higher input costs by announcing price hikes. Caterpillar continues to expect the increased prices to more than offset higher manufacturing costs this year.
Adjusted profit for the latest period was $2.88 per share, beating average analysts’ expectation of $2.60 per share. Revenue rose about 14% to $13.59 billion, beating expectations of about $13.4 billion.
- Reuters with additional editing by Jim Pollard