FedEx Corporation (FDX), Caterpillar Inc. (CAT): Deeply Worrying Results from Two Market Bellwethers

Caterpillar sales

The other major company to report poor results in recent days was Caterpillar Inc. (NYSE:CAT). The firm reported a 13% fall in global equipment sales for the quarter ending in February, driven by a huge slowdown in Asian sales. Asia Pacific sales dropped a whopping 26%, which was a particularly salient point in the report. It is one thing to speculate on a Chinese growth slowdown affecting Caterpillar’s results, it is quite another to see it actually reflected in sales for the period.

In a previous report at the end of January, the company reported a slowdown of about 4%, which was apparently a sign of things to come. Whereas investors could perhaps have shrugged that report off as a singular poor quarter, it seems now that the problems are rooted more deeply. It looks now as though it’s going to be very, very difficult for Caterpillar Inc. (NYSE:CAT) to meet its revenue targets for 2013. Management has warned about the reluctance of mining and construction companies to invest in new equipment, which is clearly hurting the conglomerate.

It is especially worrying for Caterpillar, and thus the market at large, that the bulk of the slowdown is coming from its two main geographical regions, North America and Asia Pacific. Latin America was a lone bright spot in the report, with a 3% increase in sales. However, this is of course not nearly enough to offset the huge drops in North America and Asia.

Elsewhere in the industry, major US competitor Deere & Company (NYSE:DE) was recently downgraded to Underperform by Wells Fargo, due to an expected decline in corn prices and a bearish view of 2014 and 2015 equipment demand. Deere has been doing a little better than Caterpillar Inc. (NYSE:CAT) in terms of earnings lately, perhaps because it is not exposed to construction weakness in China.

Bottom Line

To quote a StockTwits tweet by “Prop_Trader,” when Caterpillar is weak one should be very cautious on the overall market. The same is true for FedEx Corporation (NYSE:FDX). To me, the results from these major global economic bellwethers are very troubling, and are in stark contrast to the recent strength in the overall market. This lends credence to the idea that the rally is largely driven by central bank easing, rather than actual earnings strength. It may be time to start playing defense after all.

The article Deeply Worrying Results from Two Market Bellwethers originally appeared on Fool.com and is written by Daniel James.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.