By Andrew Tangel and Josh Zumbrun
Caterpillar Inc. signaled cautious optimism about global growth,
offering fresh evidence that many markets are in rebound mode after
a yearslong slump.
The world's largest heavy-machinery maker, an economic
bellwether, in its second-quarter earnings report Tuesday
highlighted growing demand in China's construction sector and a
revitalization of the mining industry. The company boosted its
earnings outlook for the year, despite sluggish infrastructure
spending in the U.S. and weakness in Brazil and the Middle
East.
The Peoria, Ill., maker of bulldozers and mining trucks said it
expects revenue of $42 billion to $44 billion for 2017, up from a
previous forecast of as much as $41 billion.
If that prediction is borne out, it would be Caterpillar's first
year-over-year revenue increase since 2012.
The upbeat earnings report was one of many that helped push the
Dow Jones Industrial Average up 100.26 points, or 0.5%, to
21613.43. The S&P 500 and Nasdaq Composite both closed at new
records.
DuPont Co. and United States Steel Corp. also topped
expectations, due to improved demand for products ranging from
soybean seeds to flat-rolled steel.
"This is the first time since the Great Recession ended that
we're seeing a synchronized global recovery and that's what the
markets are keying on right now," said Scott Anderson, chief
economist at the Bank of the West. "In some past years, whenever
the U.S. was doing well, Europe wasn't and vice versa. Now everyone
seems to be more on the same page."
A stabilization of commodity prices has put major developing
economies like China, Brazil, Russia and Nigeria on stronger
footing after they were hit by a commodity-price plunge in
2014.
An International Monetary Fund index of global commodity prices
has risen nearly 27% since hitting a 12-year low in 2016. The World
Bank projected last month that, by next year, global economic
growth would reach a seven-year high.
And stability in global manufacturing has been widespread. None
of the top-15 trading partners for the U.S. were contracting in
June, said Chad Moutray, chief economist for the National
Association of Manufacturers.
Industrial output in the U.S. has risen steadily, climbing for
the past five months, thanks in part to renewed oil and gas
production to feed global demand.
The Federal Reserve's measure of industrial production in June
was the strongest since February 2015. That has helped the U.S.
economy add 581,000 jobs in the second quarter despite a slowdown
in consumer spending and job losses in the retail sector.
Caterpillar's U.S. payroll grew to 48,500 employees by the end
of June, an increase of 2,000 over the previous three months, and
Caterpillar is hiring at factories in Illinois, Indiana and
Arkansas.
But there are doubts the recovery will be sustained. Caterpillar
executives noted that revenue increases in some cases followed
years of steep declines and that sales were still off their highs
from earlier in the decade.
The company said it is expecting strengthening demand for
excavators in China in response to government spending on
public-works projects, a pickup in the North American natural-gas
industry and increasing sales of replacement parts for mining
equipment as fewer trucks remain idle.
Geopolitical uncertainty and commodity-price volatility still
pose risks to Caterpillar's rosy outlook. Executives declined to
speculate how the company might fare next year and beyond.
Caterpillar's second-quarter revenue jumped 10% from the
year-earlier period to $11.3 billion, and profit of $802 million
beat Wall Street's expectations.
Shares rose $6.36, or 5.9%, to $114.54, contributing about 44
points to the DJIA's gain.
Solid corporate earnings have supported major stock indexes this
year, helping them climb to records. Companies in the S&P 500
are poised to report earnings growth of 7.8% in the second quarter
from the year-earlier period, according to FactSet, building on
gains from the first quarter, when firms posted their strongest
results since 2011.
A weakening dollar could further boost profits at multinational
corporations and, in turn, lift the stock market through the second
half.
Sales of construction equipment in North America, Caterpillar's
largest market, rose 3% in the second quarter. But U.S. government
spending on roads, bridges and other infrastructure was lackluster,
executives said.
"The United States is in need of infrastructure investment,"
Caterpillar Chief Financial Officer Brad Halverson said.
While Caterpillar's revenue from construction equipment rose 11%
overall in the quarter, sales decreased 5% in the region including
Europe, the Middle East and Africa. Latin American sales rose 31%
as several economies there showed signs of improvement, but Brazil
remains a weak spot, executives said.
Signs of turnaround in Caterpillar's retail segment emerged in
the first quarter. That trend continued as retail sales of
Caterpillar machinery increased 7% world-wide during the three
months ended June 30.
Caterpillar reported quarterly earnings per share of $1.35.
Analysts polled by Thomson Reuters had expected $1.26 in adjusted
earnings per share.
--Akane Otani and Austen Hufford contributed to this
article.
Write to Andrew Tangel at Andrew.Tangel@wsj.com and Josh Zumbrun
at Josh.Zumbrun@wsj.com
(END) Dow Jones Newswires
July 25, 2017 20:04 ET (00:04 GMT)
Copyright (c) 2017 Dow Jones & Company, Inc.
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