Caterpillar lifts 2018 outlook on robust global demand

By Rajesh Kumar Singh

CHICAGO (Reuters) - 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, part of the Dow Jones Industrial Average, were up 3.6 percent at $159.45 in early morning trade on the New York Stock Exchange.

The Deerfield, Illinois-based company now expects the full-year profit to range between $9.75 to $10.75 per share, $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.

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 multiyear downturn. Similarly, improved global economic conditions and a recovery in commodity prices are seen encouraging miners into ramping up capital spending, it said.

"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.

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.

Worries about a potential trade dispute have led to a 6 percent drop in the company's shares since its last earnings report.

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

Sales rose 31 percent to $12.9 billion, also above expectations, helped by favourable currency impacts and improved price realization.

The company posted its largest sales increase in North America during the quarter. Higher end-user demand for construction equipment in China lifted overall sales in Asia-Pacific by 44 percent from a year ago.

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

(Reporting by Rajesh Kumar Singh; editing by Nick Zieminski and Jonathan Oatis)