U.S. stocks dropped on Tuesday, extending Monday's slide as another corporate earnings season began in earnest. Though major market indexes pared their early losses as the session wore on, both the Dow Jones Industrial Average (DJINDICES:^DJI) and the S&P 500 (SNPINDEX:^GSPC) fell roughly half a percent.
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Oil stocks led the market lower after Saudi Arabia announced it won't constrain oil production given impending U.S. sanctions on Iran, leaving the SPDR S&P Oil & Gas Exploration and Production ETF (NYSEMKT:XOP) down 3.5%. Industrial stocks declined amid concerns that tariffs and higher expenses will weigh on corporate profits; the Industrial Select Sector SPDR Fund (NYSEMKT:XLI) lost 1.7%.
Caterpillar's climbing costs
Shares of Caterpillar fell 7.6% after the construction equipment giant announced solid third-quarter 2018 results but followed with underwhelming guidance.
That's not to say Caterpillar's quarter looked bad at first glance. Quarterly revenue grew 18% year over year to $13.5 billion, which translated to 46.7% growth adjusted earnings to $2.86 per share. Analysts, on average, were expecting earnings of $2.85 per share on revenue of $13.29 billion.
"This was the best third-quarter profit per share in our company's history," added \ CEO Jim Umpleby. "Our global team continues to do excellent work focusing on our customers' success and executing our strategy for profitable growth."
But the company also pointed out that manufacturing costs climbed due to higher material and freight expenses, with the former driven by higher steel prices and tariffs, and the latter caused by supply-chain inefficiencies as Caterpillar strives to keep pace with strong global demand.
Even so, Caterpillar reaffirmed its 2018 outlook for adjusted per-share earnings in the range of $11.00 to $12.00, assuming favorable pricing, operational efficiency, and cost initiatives will offset those higher costs. Most of Wall Street was modeling full-year earnings of $11.66 per share, above the midpoint of Caterpillar's expected range.
Harley's stateside woes
Shares of Harley fell as much as 6.6%, then partially recovered to close down 2.2% after the motorcycle manufacturer's better-than-expected quarterly results were overshadowed by disappointing U.S. sales.
Harley's quarterly revenue grew 16.8% year over year, to $1.124 billion, which translated to adjusted net income of $129.8 million, or $0.78 per share. Both the top and bottom lines arrived comfortably above consensus estimates for earnings of $0.53 per share on revenue of $1.07 billion.
However, Harley's growth was driven entirely by international markets, where motorcycle sales climbed 2.6% and more than offset a 13.3% decline from the United States. To be fair, the broader motorcycle industry also saw U.S. sales dip 10% over the same period. But investors are rightly concerned that Harley's fall outpaced that figure, indicating that the iconic brand lost market share to competitors like Polaris and its increasingly popular Indian Motorcycle line.