CAT Caterpillar Inc

By Austen Hufford and Micah Maidenberg 

Caterpillar Inc. beat revenue expectations for the first quarter, thanks to higher demand for its mining and construction equipment.

The machinery giant's improved sales suggest that at least some corners of the global economy may be stabilizing after signs of slower growth earlier this year. Investors had been concerned in recent quarters about demand, particularly in China, as well as higher costs.

"The market's strong," Chief Executive Jim Umpleby said on a call with analysts, referring to Caterpillar's mining business. "We're ramping up production."

Despite the revenue gains, Caterpillar's shares fell more than 2% Wednesday as the company's costs continued to rise.

The company paid more for labor and freight in the quarter, as well as some raw material in part due to U.S. tariffs on imported steel and aluminum. Caterpillar had $70 million in costs related to tariffs in the quarter, compared with $110 million for all of last year following the implementation of those tariffs last March.

Caterpillar has raised prices to offset those costs. It said prices were up just over 2 percentage points overall in the quarter from a year ago. Higher prices and volumes added $557 million to operating profit in the quarter, offsetting $375 million in higher manufacturing costs. Profit margins fell in its construction business because the increased material, labor and freight costs weren't covered by higher prices.

Deerfield, Ill.-based Caterpillar on Wednesday reported sales, including revenue from financial products, of $13.47 billion for the quarter, up 5% from last year and more than the $13.27 billion analysts predicted, according to FactSet.

Revenue from its mining business rose 18% in the first quarter, while construction sales were up 3%. Energy and transportation-equipment sales were flat.

In the U.S. and Canada, Caterpillar's largest market, sales rose 7%.

"That reflects the strong construction activity, as state and local infrastructure builds are still going up," said Andrew Bonfield, Caterpillar's financial chief, in an interview. "North America seems to be going very well."

Caterpillar said it expects demand for its products in China to rise slightly this year, compared with expectations for no growth previously. The company also said it expected to lose some market share in China to competitors. Other companies have said that government stimulus in China appears to be stabilizing the world's second-largest economy. Caterpillar has said it makes some 10% of its sales in China.

The company reported a profit of $1.88 billion, or $3.25 a share, up from $1.67 billion, or $2.74 a share, in the year-ago period. After adjustments, the company said it earned $2.94 a share, versus the $2.83 a share analysts predicted.

Caterpillar said 850,000 of its machines are now connected to the internet world-wide, up from 700,000 connected last summer, the latest indication of progress in expanding a services business the company wants to use to smooth out its revenue stream.

Caterpillar boosted its profit forecast for the year due to new guidance from the U.S. Treasury Department, as the details from the 2017 tax overhaul continue to filter through to corporate finance departments. It now predicts $12.06 to $13.06 a share in earnings this year, up from the previous expectations of $11.75 to $12.75 a share. The company expects the additional profit to be excluded from adjusted earnings in a coming quarter.

Write to Austen Hufford at austen.hufford@wsj.com and Micah Maidenberg at micah.maidenberg@wsj.com

(END) Dow Jones Newswires

April 24, 2019 13:04 ET (17:04 GMT)

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