Caterpillar shares plunge on concerns earnings have peaked

By Rajesh Kumar Singh

CHICAGO (Reuters) - Caterpillar Inc's shares gave up early gains and tumbled on Tuesday on concerns that rising material costs following U.S. President Donald Trump's crackdown on steel imports would hurt its earnings in the coming quarters.

Those worries overshadowed its strong performance in the March quarter when both profits and revenues topped analysts' estimates, prompting the world's largest heavy equipment maker to upgrade its profit outlook for 2018.

The concerns were sparked by management's comments that strong performance in the first quarter was the "high watermark" for the year and the company would not have the same pricing power in the remainder of 2018 to pass on the increased material costs.

Shares in Caterpillar, part of the Dow Jones Industrial Average , were last down 6 percent at $144.81 on the New York Stock Exchange after gaining as much as 4.6 percent in early trade.

"It's a negative surprise because the indications had previously been that everything was okay on that front," said Lawrence T. De Maria, co-group head of Global Industrial Infrastructure at William Blair & Company.

President Donald Trump's crackdown on steel imports have constrained supplies in the domestic market, inflating the costs of the metal. Caterpillar said steel costs for the equipment industry were up about 15 percent in the March quarter.

OUTLOOK REVISED UPWARD

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.

In the latest quarter, revenues rose 31 percent on year to $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.

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

"The first quarter was an exceptional quarter for performance," said Amy Campbell, head of investor relations at Caterpillar.

While she said the performance would not be repeated, the company still expected "strong" operating margins for the full-year.

TRADE WORRIES

Caterpillar's 2018 forecast did not include any potential impact from future geopolitical risks and increased trade restrictions.

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

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.

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

(Additional reporting by April Joyner in New York; editing by Jonathan Oatis and Tom Brown)