Caterpillar Plows Through Wall Street Expectations

Caterpillar Inc. posted results that swept past expectations and increased its forecast for the full year a second time, underscoring its strength across its different businesses and a continued recovery in demand in China.

Shares of the largest construction and mining equipment manufacturer in the world rose by up to 5.4% during trading on Tuesday to reach a high of over five years.

The strong results by Caterpillar are the best indication to date that the company was turning the corner following uncertainty in the global economy and weak prices in commodities that hit demand for the earth moving equipment over the last few years.

A Wall Street analyst called the Caterpillar results a strong beat even as most expectations had been high entering the quarter.

Caterpillar sales were higher in all three of the main businesses of the company with its resource industries unit that makes its mining equipment, posting the largest jump in comparison to the same period one year ago.

While stating that markets are still challenging, CEO Jim Umpleby said that construction throughout China and North America’s gas compression were the quarter’s highlights.

Total sales at Caterpillar were up 9.5% to end the three-month period at $11.32 billion and beat analyst’s expectations of $10.92 billion easily.

Sales from its Asia Pacific sector, the third largest market for Caterpillar, surged by 23% during the quarter, driven by the increase in sales of construction equipment in China.

Construction equipment demand in China has gained momentum after it bottomed out in 2016, driven by the infrastructure push by Beijing, a boom in housing, and the increased investment linked to the modern-day Silk Road in China.

North America, the largest market for Caterpillar, has sales that increased by 7% driven by the improved demand from the energy and mining industries as commodity prices moved upward.

The majority of demand from the gas and oil business came as companies put rigs back to work, but the company cautioned prices needed to stabilize at the higher levels to drive demand for the long term for its equipment.

The number of rigs in operation in North America has doubled off the lows during 2016, but providers of oilfield services like Halliburton have warned the rig count growth had signs of reaching its plateau.

Caterpillar now expects adjusted earnings for 2017 to be $5 a share, which it raised from its previous forecast of $3.75.

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