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Apr 24, 2018

Caterpillar boosts 2018 profit outlook on strong global demand

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CHICAGO - Caterpillar Inc on Tuesday upgraded the outlook for 2018 profits after the world's largest heavy-duty equipment maker beat estimates for first-quarter earnings on strong global demand for its equipment.

Shares in Caterpillar (CAT.N), part of the Dow Jones Industrial Average, reversed course and were down about 4 per cent on the New York Stock Exchange.

The Deerfield, Illinois-based company now expects the full-year profit to range between US$9.75 to US$10.75 per share, US$2 above its range in January.

The company, which serves as a bellwether for global economic activity, has been benefiting from a global economy that is having its best run since 2011.

In the quarter to end-March, revenues rose 31 per cent on year to US$12.9 billion, above Wall Street's expectations, as strong commodity prices and increased construction activities in North America and China drove up sales of mining and construction machines.

Increased rail traffic in North America, meanwhile, helped lift sales at its transportation division.

Overall sales were also boosted by favorable currency impacts and improved price realization.

"All in, a solid beat and raise quarter which should get reflected in the market, in our view," analysts at Jefferies said about Caterpillar's earnings in a note.

With the International Monetary Fund predicting robust global growth for the next two years, demand for its equipment is expected to remain strong.

Caterpillar said its stronger outlook was primarily driven by better-than-expected sales volume as it saw higher demand across all regions and most end markets.

While it sees broad-based growth in global construction demand, North America and China are expected to be the biggest drivers.

The company expects power generation sales to increase in 2018 after a multi-year downturn. Similarly, improved global economic conditions and a recovery in commodity prices are seen encouraging miners into ramping up capital spending, it said.

TRADE WORRIES

Yet, threats of a global trade war pose the biggest risks for a company that sells more than half of its machines outside the United States.

In its annual report earlier this year, the company warned that "buy national" policies or retaliation against such policies could adversely impact its operations.

Its 2018 forecast, however, did not include any potential impact from future geopolitical risks and increased trade restrictions.

The company reported a net profit of US$2.74 per share for the quarter, above analysts' consensus forecast of US$2.04 per share. Adjusted net profit was US$2.82 per share.

Caterpillar repurchased US$500 million of its shares during the quarter. It had US$7.9 billion of cash on hand on March 31.