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Caterpillar's earnings add to industrial gloom

(Reuters) - Caterpillar Inc on Friday forecast worse-than-expected earnings for this year after reporting lower sales across all three primary segments in the last quarter, offering further evidence of strains in the U.S. industrial economy.

The world’s biggest construction and mining equipment maker said it expects 2020 profit of $8.50 to $10 per share, lower than $11.06 per share last year and below the average analyst estimate of $10.63 per share.

The Deerfield, Illinois-based company, considered a bellwether for economic activity, has been buffeted by the prolonged U.S.-China trade war that has made its customers wary of committing to large capital expenditures, hitting its sales and forcing production cuts.

With customers hesitant to spend on new equipment, dealers reduced their inventories by $700 million in the quarter to end-December, leading to a drop in sales at machinery, energy and transport division.

The company expects as much as an annual 9% decline in retail sales this year, resulting in a reduction of up to $1.5 billion in dealer inventories.

Its shares were down 0.6% at $134.60 in pre-market trade.

Caterpillar’s earnings comes a day after the world’s largest package delivery company, United Parcel Service Inc, forecast 2020 profit below estimates, citing global trade weakness and a slump in domestic industrial production.

The tit-for-tat tariff war between the world’s two largest economies dragged down global growth last year to the lowest level since the global financial crisis. In the United States, it drove the manufacturing economy into a recession.

In the face of weak demand, the company has been trying to keep a lid on its costs. That helped improve operating profits in the last quarter despite lower sales.

Chief Financial Officer Andrew Bonfield told Reuters cost controls including lower material and freight expenses are likely to offset weak equipment demand this year, helping cushion the hit on the company’s profits.

While a trade truce between the United States and China has eased trade tensions, the outbreak of coronavirus has clouded the economic outlook. The outbreak has killed more than 200 people in China and has spread to 23 countries and regions, from Japan to the United States.

Bonfield said the 2020 earnings outlook factors in information the company has, thus far, about the coronavirus’ impact. He said, however, the situation in China is “very fluid.”

Adjusted profit for the fourth quarter came in at $2.63 per share compared with $2.55 per share last year. Analysts on average expected a profit of $2.37 per share, according to IBES data from Refinitiv.

Reporting by Rajesh Kumar Singh in Chicago and Rachit Vats in Bengaluru; Editing by Chizu Nomiyama and Nick Zieminski