Worm Turns

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What's going on?

The earth moved beneath the king of the diggers on Tuesday: construction equipment manufacturer Caterpillars stock fell 7% after it flagged a crumbling road ahead (tweet this).

What does this mean?

Caterpillar had a better-than-expected three months its third-quarter profit was actually its highest ever. But investors couldnt look past Caterpillar still grappling with higher costs, whichll weigh on profits next quarter and beyond. Those are principally transport-related: not only is the company forking out for higher freight costs to bring in raw materials and ship out orders to global customers, but its also paying tariffs, thanks to the USs trade tussles with other countries. Caterpillars hoping to raise its prices to offset those costs, but for last quarter at least, price hikes couldnt keep pace.


Investors were expecting Caterpillars profit to flutter up but they also thought the company would raise its annual forecast, just like last quarter. So, although Caterpillar didnt lower its forecast, no news wasnt good news leaving investors feeling as yellow-bellied as one of the companys iconic dump trucks.

Why should I care?

For markets: Misery loves company.

Caterpillars an industrial bellwether, meaning investors look to it for clues about whats going on at other mega-manufacturers. Shares of agricultural equipment maker Deere accordingly fell 3% on Tuesday. The companys likely to face similar pressures from rising costs to Caterpillar but they could bite Deere even harder, since its already on a mission to slash costs following a fallow previous quarter.



The bigger picture: The (peanut) butterfly effect bites.

US companies focused on their domestic markets had a rougher time of it, but McDonalds and Harley-Davidson (a high-profile trade war casualty) had the rest of the world to thank for picking up the slack left by America in their last quarters. International sales growth at McDonalds helped it beat estimates overall on Tuesday, sending its stock up 7%. And European sales rose at Harley even as US sales dropped last quarter.

Originally posted as part of the Finimize daily email.

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