Caterpillar raises 2018 profit outlook, beats quarterly estimates

CHICAGO (Reuters) - Caterpillar Inc (CAT.N) on Monday raised its full-year profit outlook after earnings in the second quarter nearly doubled, beating market expectations, helped by global demand for its equipment.

The Deerfield, Illinois-based company now expects adjusted profit per share to be in a range of $11 to $12 in 2018, compared with $10.25 to $11.25 projected earlier.

The second increase to the profit outlook in the past two quarters helped allay investors’ concerns about the health of the global economy amid increasing trade frictions and pressure on costs. But the stock gave up early gains on worries that earnings might be approaching their peak.

“We are just stuck in this backdrop of ‘is this cycle getting toward the higher end?’ And if it is, you don’t want to own these cyclical stocks near the peak of the cycle,” said Stephen Volkmann, an analyst with Jefferies.

“Unfortunately, you can see good quarters get sold in that type of sentiment,” he said, adding that profit margins in the quarter were near the high end of the company’s own targets.

Those concerns have been weighing on the company’s stock since April, fueled in part by Caterpillar’s comments that its first-quarter performance was the “high-water mark” for the year.

Caterpillar’s shares were last up about 0.4 percent at $143.10. The stock has lost about 18 percent since January and last month fell to its lowest level since late October before recovering modestly.

Monday’s results, however, showed that a strong global economy, which is having its best run since 2011, is helping manufacturers like Caterpillar book more orders and deliver higher profits despite growing cost pressures.

For example, the company said demand for oil and gas and mining machines is so strong that it was taking orders for delivery well into 2019. At the end of the second quarter, its order backlog was $17.7 billion, up about $200 million from the first quarter.

It saw positive pricing in all of its principal business segments except construction industries.

This is in contrast to companies such as Ford Motor Co (F.N) and Harley-Davidson Inc (HOG.N), which are battling weak demand and do not enjoy the same pricing power to offset increased input costs.

Caterpillar, which serves as a bellwether for global economic activity, said tariffs could inflate material costs in the second half of the year by up to $200 million. It also expects supply chain challenges to continue to pressure freight costs.

However, it expects to take higher costs in its stride through the price increases it carried out on July 1 and through cost discipline.

In resource industries, higher commodity prices and strong global growth have helped improve the finances of mining customers, underpinning replacement demand and mine expansions.

In Caterpillar’s energy & transportation division, robust oil prices are supporting demand for well-servicing and gas compression applications in North America.

In the Asia-Pacific region, which accounted for nearly a quarter of company revenues, equipment sales were up 39 percent from a year ago, helped by increased construction activity and infrastructure investment in China.

Caterpillar reported an adjusted profit of $2.97 a share in the second quarter, compared with $1.49 a share last year. Analysts on average had expected earnings of $2.73 a share.

The company repurchased $750 million of shares in the second quarter and announced an up to $10-billion buyback authorization from January 2019.

Reporting by Rajesh Kumar Singh; Editing by Nick Zieminski

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