Caterpillar Inc, the major industrial stock that has performed the best in 2016, lowered its sales and profit forecasts as a commodities rally of three months is at risk of losing its momentum.
The company, in a prepared statement, said that prices of commodities improved from recent lows, but there remains an excess supply. It is not yet clear that the prices current in the market will be either sustainable or even sufficient to drive more demand for new equipment.
Caterpillar CEO Doug Oberhelman is shuttering factories as well as cutting over 10,000 jobs through the end of 2018 in response to the ongoing energy and mining route around the world.
With the commodity indexes slumping during January to lows of all-time, customers from Brazil to Australia trimmed costs to stay profitable, denting their machinery orders.
While the commodity markets are rebounding as the overhangs in supply begin to reduce, demand for the signature yellow diggers of the company and their trucks had not yet revived.
Commodity producers, who use machinery from Caterpillar to transport or dig up materials and power their other equipment, have cut way back on capital spending.
The biggest mining business in the world, BHP Billiton, said in March that it would be cutting its spending.
Revenue this year should reach to between $40 billion and $42 billion, said the company on Friday. Caterpillar forecast earnings for the full year of $4 per share and revenue of between $40 billion and $44 billion in January.
The company adjusted its per share earnings from its prior forecast of $4 to $3.70.
Profit, excluding items that are one-time during the first quarter reached 67 cents per share, missing Wall Street’s estimates of 68 cents.
Shares of Caterpillar have soared by 16% in 2016 through the end of business on Thursday along with the rally of other commodity producers, which has made it the Dow Jones Industrial Average’s best performer.
Caterpillar was down in early morning trading by $1.16.
In March, Caterpillar issued its first every quarterly earnings guidance, announcing it would report a per share profit of between 65 cents and 70 cents during the first quarter, without making a change to its outlook for the year.