Caterpillar paints upbeat picture of global economy

By Rajesh Kumar Singh CHICAGO (Reuters) - Caterpillar Inc on Monday gave a promising outlook for the global economy despite ongoing trade tensions and mounting cost concerns, and the heavy equipment maker lifted its full-year earnings forecast after quarterly profits nearly doubled. 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 somewhat allay investors' concerns that the industrial cycle and even broader economic activity are approaching their peak

Reuters July 31, 2018 01:05:07 IST
Caterpillar paints upbeat picture of global economy

Caterpillar paints upbeat picture of global economy

By Rajesh Kumar Singh

CHICAGO (Reuters) - Caterpillar Inc on Monday gave a promising outlook for the global economy despite ongoing trade tensions and mounting cost concerns, and the heavy equipment maker lifted its full-year earnings forecast after quarterly profits nearly doubled.

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 somewhat allay investors' concerns that the industrial cycle and even broader economic activity are approaching their peak.

"There is continuing improvement in many of our end markets," Jim Umpleby told analysts on a conference call. "Our order rates in the backlog remain strong."

Caterpillar said it has not yet seen the impact of ongoing trade tensions on its business, but said tariffs are estimated to inflate material costs in the second half of 2018 by up to $200 million.

Overseas markets account for half of Caterpillar's sales. Caterpillar is better placed than many companies to deal with the tariffs as its manufacturing footprint is spread across the globe.

Yet, the stock has lost about 18 percent since January, buffeted by increasing trade frictions and mounting costs. The stock last month fell to its lowest level since late October before recovering modestly. It was last trading up 0.4 percent at $143.20.

Higher freight prices, which drove up manufacturing costs in the last quarter, are expected to remain elevated.

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

Analysts at JP Morgan reiterated their "Overweight" rating on the stock, saying potential earnings upside is not fully priced in the company's shares.

STRONG DEMAND, PRICING POWER

Monday's results 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 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.

Overall, the company expects product prices to more than offset increased costs in the second half of the year.

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

In resource industries, higher commodity prices and strong global growth have helped improve the finances of mining customers. However, the company said customers have yet to start full-scale fleet replacements.

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 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)

This story has not been edited by Firstpost staff and is generated by auto-feed.

Updated Date:

TAGS:

also read

France, Germany to agree to NATO role against Islamic State - sources
| Reuters
World

France, Germany to agree to NATO role against Islamic State - sources | Reuters

By Robin Emmott and John Irish | BRUSSELS/PARIS BRUSSELS/PARIS France and Germany will agree to a U.S. plan for NATO to take a bigger role in the fight against Islamic militants at a meeting with President Donald Trump on Thursday, but insist the move is purely symbolic, four senior European diplomats said.The decision to allow the North Atlantic Treaty Organization to join the coalition against Islamic State in Syria and Iraq follows weeks of pressure on the two allies, who are wary of NATO confronting Russia in Syria and of alienating Arab countries who see NATO as pushing a pro-Western agenda."NATO as an institution will join the coalition," said one senior diplomat involved in the discussions. "The question is whether this just a symbolic gesture to the United States

China's Xi says navy should become world class
| Reuters
World

China's Xi says navy should become world class | Reuters

BEIJING Chinese President Xi Jinping on Wednesday called for greater efforts to make the country's navy a world class one, strong in operations on, below and above the surface, as it steps up its ability to project power far from its shores.China's navy has taken an increasingly prominent role in recent months, with a rising star admiral taking command, its first aircraft carrier sailing around self-ruled Taiwan and a new aircraft carrier launched last month.With President Donald Trump promising a US shipbuilding spree and unnerving Beijing with his unpredictable approach on hot button issues including Taiwan and the South and East China Seas, China is pushing to narrow the gap with the U.S. Navy.Inspecting navy headquarters, Xi said the navy should "aim for the top ranks in the world", the Defence Ministry said in a statement about his visit."Building a strong and modern navy is an important mark of a top ranking global military," the ministry paraphrased Xi as saying.