Caterpillar, Nvidia sound alarm on China impact

January 28, 2019

(Reuters) – Warnings from Caterpillar and Nvidia on Monday about weakening demand from China signal investors could see more profit shortfalls from U.S. companies that count on the world’s No. 2 economy for a big portion of their business.

Shares of Caterpillar Inc and Nvidia Corp sank 10 percent and 15 percent, respectively, after the two manufacturers joined a growing list of companies to warn on the crippling effects of the fall-off in growth in the world’s most populous country.

Apple Inc, a host of chipmakers, and FedEx Corp had already stoked fears of a global slowdown, particularly in a technology sector that depends heavily on China to drive revenue.

It does not bode well, several analysts said, for the rest of an earnings season that has only just got under way.

“The negative forecasts from Caterpillar and Nvidia really point to those areas of concern with trade, global economic activity and the potential impact of a strong dollar,” Eric Wiegand, senior portfolio manager at U.S. Bank Wealth Management, said.

China’s economy cooled in the fourth quarter under pressure from faltering domestic demand and bruising U.S. tariffs, dragging 2018 growth to the lowest level in nearly three decades.

President Trump is bent on curbing what Washington says is Beijing’s deliberate theft of American intellectual property and trade secrets. Without progress in the weeks ahead, he has threatened a new round of tariffs from March 2.

Monday’s stock market declines, following an unusual warning from Apple earlier this month, underline the flip side of such moves for U.S. companies.

Asia-Pacific was Caterpillar’s only region to record a fall in revenue, but the end result – including a handful of other factors – was a more than 40-cent miss on earnings per share in the fourth quarter.

Nvidia cut its fourth quarter revenue estimate by half a billion dollars to just $2.2 billion. That added to a previous number that was already $700 million short of analysts’ forecasts and was blamed chiefly on gaming revenue in China.

“Across the broad spectrum ranging from heavy equipment to semiconductors, business in China is slowing down,” said Peter Tuz, president of Chase Investment Counsel in Charlottesville, Virginia.

“The question is what does the tariff controversy factor into the slowdown. You can’t answer that question yet. There’s no way to predict it.”

There could be more pain, starting later on Monday when washing machine maker Whirlpool Corp reports. Boeing Co follows on Wednesday, along with a host of tech heavyweights.

“China is an issue for companies doing business there as their economy is slowing,” said Paul Nolte, portfolio manager, Kingsview Asset Management in Chicago.

“In general we are trying to steer clear of a lot of China exposure.”

(Reporting by Sweta Singh in Bengaluru, Additional reporting by Shreyashi Sanyal in Bengaluru and Caroline Valetkevitch in New York; Editing by Bernard Orr)