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By Andrew Tangel 

This article is being republished as part of our daily reproduction of WSJ.com articles that also appeared in the U.S. print edition of The Wall Street Journal (April 25, 2018).

Business is booming at Caterpillar Inc. It's the future that's in question.

The company, which makes bulldozers, mining trucks and other equipment, said sales rose 31% in the first quarter thanks to strong global construction and mining activity. But on a call with analysts, top executives said the quarter could prove to be a "high-water mark" for the year.

That's all the market needed to hear. Caterpillar's shares dropped 6.2% on Tuesday, pressuring the Dow Jones Industrial Average.

"It got everybody spooked," said Stifel analyst Stanley Elliott.

The news wasn't much better for another major industrial manufacturer, 3M Co. Its shares fell 6.8% after the maker of myriad products including tapes and adhesives narrowed its revenue and profit forecast for this year.

Executives of both companies pointed to rising costs as a threat to profits.

"We are seeing some increases in raw material prices, in fact, more than what we originally estimated," said 3M Chief Financial Officer Nicholas Gangestad. He said the St. Paul-based conglomerate faced higher transportation and material costs as oil prices rose.

Executives at both 3M and Caterpillar, of Deerfield, Ill., said they would raise prices to offset the hit to profits.

They also said their steel costs have risen since the Trump administration moved in recent months to place duties on imports from many foreign countries.

Caterpillar warned that trade tensions that reach far beyond the steel industry could darken the outlook for the rest of the year. Officials in both China and the U.S. are threatening each other with additional trade barriers. "We remain optimistic that government leaders can work towards a positive outcome," Amy Campbell, Caterpillar's director of investor relations, said in an interview.

Still, Caterpillar boosted its outlook for the year by $2 above the upper end of its previous forecast, saying it could earn as much as $10.75 a share in 2018. "It certainly wasn't our intent to express a concern," Chief Executive Jim Umpleby told analysts after one noted the sharp share drop.

Sales growth in North America was Caterpillar's biggest driver in the quarter. Dealers boosted inventories as demand for construction equipment increased, primarily due to public works and energy infrastructure such as pipelines.

Increased building construction and spending on infrastructure in China drove sales in its Asia/Pacific region. Ms. Campbell told analysts that demand in China for 10-ton excavators would rise 30% this year, versus earlier predictions of 8%. "We do at this point continue to expect China to be very strong for the rest of the year," she said.

Mining companies increasingly replaced equipment and expanded their fleets as commodity prices remained strong.

Overall for the first quarter Caterpillar reported a profit of $1.67 billion, or $2.74 a share, up from $192 million, or 32 cents a share, a year earlier. On an adjusted basis, earnings more than doubled to $2.82 a share.

Last year's results were dented by $723 million in restructuring costs primarily related to a facility closure. Caterpillar's restructuring costs in the most recent quarter were $69 million. Analysts polled by Thomson Reuters had forecast earnings of $2.13 a share on $12.07 billion in sales. The company's domestic workforce stood at 51,500 employees at the end of March, up from 46,500 a year ago.

Write to Andrew Tangel at Andrew.Tangel@wsj.com

(END) Dow Jones Newswires

April 25, 2018 02:47 ET (06:47 GMT)

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