Home Depot, Caterpillar shares fall on growth concerns

/ CBS/AP

Atlanta – As construction goes, so goes the world economy? That seems to be the message from two U.S. powerhouses — Home Depot and Caterpillar — that see their fortunes closely tied to that industry. Home Depot fell short on profit, revenue and same-stores sales expectations in the fourth quarter with slumping home sales amid rising prices casting a chill over the U.S. housing market.

Shares fell 3.5 percent Tuesday before the opening bell.

Caterpillar shares were also down nearly 4 percent in premarket trading Tuesday morning after UBS issued a downgrade — actually two — citing slower global construction. UBS cut both Caterpillar's stock price target, to $125 from $154, and lowered its recommendation on the shares, to "sell" from "buy" — without stopping at "hold."

Home Depot's latest results may not improve too quickly. Last week, the National Association of Realtors reported that U.S. home sales dropped 1.2 percent in January to their worst pace in more than three years. During the past 12 months, sales have tumbled 8.5 percent.

Would-be homebuyers are increasingly priced out of the market as years of climbing prices and strained housing inventories put home ownership out of reach for many Americans.

Researcher proposes how to solve the U.S. affordable housing crisis

A solid job market has done little to boost sales with wage gains still meager. The sharpest annual sales declines have been registered among homes priced at less than $250,000.

Those declines can ripple out to companies that sell homebuilding and home-improvement materials like Home Depot and its rival, Lowe's, which slid in tandem with Home Depot in early trading on Tuesday.

For the three months ended Feb. 3, Home Depot earned $2.34 billion, or $2.09 per share. That's far short of the per-share earnings of $2.22 Wall Street was looking for, according to a survey by FactSet.

A year ago, the Atlanta home improvement retailer earned $1.78 billion, or $1.52 per share. The current quarter was also nicked by a one-time charge of 16 cents per share.

Revenue climbed to $26.49 billion, from $23.88 billion, helped by an extra week in the quarter that added approximately $1.7 billion in sales, but that was also short of forecasts.

Disappointing profit guidance

Sales at stores open at least a year rose 3.2 percent, below analyst expectations of a 4.5 percent jump. In the U.S., same-store sales increased 3.7 percent. Comparable-store sales are a key indicator of a retailer's health because it excludes volatility from stores that were recently opened or closed.

Home Depot's profit guidance for 2019 issued Tuesday was for $10.03 per share, which is also below Wall Street projections for $10.26.

Still, Home Depot expressed some optimism about the year ahead. The company announced Tuesday that it's raising its quarterly dividend 32 percent to $1.36 per share. It also forecast strong sales growth of about 3.3 percent.

Home Depot expects same-store sales to increase 5 percent this year, better than the 4.3 percent increase that Wall Street analysts had been expecting.

Nearing a market peak

Concerning Caterpillar, in a note on Monday, UBS analyst Steven Fisher wrote: "We believe 55 percent of CAT's end markets will peak in 2019, pressuring revenue and margins in 2020 as demand declines."

Fisher added that "We expect 2020 EPS to decline 8 percent [year-over-year], as continued growth in mining and buybacks will not be enough to offset headwinds in construction and oil & gas."

Caterpillar is also caught in the tariff wars President Donald Trump has sparked. Its shares dropped during 2018 as the U.S.-China trade standoff intensified. And it's now in the EU's crosshairs. Eurozone trade officials have threatened retaliatory tariffs against Caterpillar, and other U.S. multinationals, if Mr. Trump launches U.S. levies against European-made autos.

First published on February 26, 2019 / 9:05 AM

© 2019 CBS Interactive Inc. All Rights Reserved. This material may not be published, broadcast, rewritten, or redistributed. The Associated Press contributed to this report.

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