Caterpillar Raises Forecast on Construction Outlook

Caterpillar Inc. (CAT) posted better-than-expected first-quarter earnings and sales and boosted its full-year profit outlook on improved expectations for construction while also saying the mining industry continues to disappoint.

Profit this year excluding restructuring costs will be $6.10 a share, Peoria, Illinois-based Caterpillar said today in a statement. That exceeds the company’s January projection of $5.85 and the $5.81 average of analysts’ estimates compiled by Bloomberg. The shares climbed 1.8 percent in New York.

Caterpillar is the world’s largest maker of construction machinery, and that segment of its business increased sales 20 percent in the quarter while earnings tripled. It doubled its 2014 sales growth forecast for construction equipment such as excavators and backhoes to 10 percent. North American customer demand is rising and dealers are rebuilding inventories, the company said.

“Residential construction has been improving and now we are getting a kick from commercial construction in North America,” Karen Ubelhart, a Bloomberg Industries machinery analyst, said by phone today. “Both the dealers and Caterpillar are saying, ‘Things have turned and we want to be ready for it.’”

Photographer: Luke Sharrett/Bloomberg

Caterpillar said profit this year will be about $6.10 a share. Close

Caterpillar said profit this year will be about $6.10 a share.

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Photographer: Luke Sharrett/Bloomberg

Caterpillar said profit this year will be about $6.10 a share.

Non-residential construction spending in the U.S. rose 6 percent in February from a year earlier, while residential spending gained 13 percent, according to Census Bureau data compiled by Bloomberg.

Hearing Optimism

Chairman and Chief Executive Officer Doug Oberhelman said he’s hearing “positive stories about new projects and reasons for optimism” from U.S. construction customers and dealers.

“While that’s encouraging, there’s still quite a bit of room for improvement,” he said in the statement. “The U.S. construction industry is still well below its 2006 peak.”

Caterpillar rose to $105.28 at the close. The shares have climbed 16 percent this year.

First-quarter net income rose to $1.44 a share from $1.31 a year earlier. Excluding restructuring costs, profit was $1.61, topping the $1.23 average of 22 estimates compiled by Bloomberg. Sales were almost unchanged at $13.2 billion, compared with the average estimate of $13.1 billion.

The state of the construction market contrasts with the company’s natural resources business, which has been hit by a downturn in mining investment. The unit’s profit dropped 68 percent in the quarter and full-year sales are now expected to fall 20 percent, twice as much as previously expected, Caterpillar said.

Mining Slump

Caterpillar eliminated 7 percent of its workforce in the past year after the mining slump caused sales and earnings to drop last year for the first time since 2009. Mining companies have slashed spending, and Caterpillar said today that large mining-truck sales are about 80 percent down from their 2012 peak.

Caterpillar maintained its expectation for global economic growth to accelerate to 3 percent this year, from about 2 percent in 2013, with China growing 7.5 percent. Chinese reforms aimed at transitioning “to a more sustainable growth model while maintaining social stability” may impact the economy and Caterpillar’s customers, the company said.

Faster global growth should support commodity prices and maintain mine output, the company said. Mining companies may still remain cautious with equipment investments, resulting in the forecast mining-sales drop, the company said.

Caterpillar warned that the political conflict between Russia and Ukraine could escalate, slowing growth and result in government trade sanctions that would hurt sales in the region.

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editors responsible for this story: Simon Casey at scasey4@bloomberg.net Steven Frank

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