CAT Caterpillar Inc

By Andrew Tangel 

Caterpillar Inc. executives said a strong first quarter could be a "high-water mark" for the year, a suggestion that pushed down shares in the machinery giant and the broader stock market.

Caterpillar's shares dropped 6% Tuesday as the Dow Jones Industrial Average declined about 2%. Shares in 3M Co. fell nearly 7% after the maker of myriad products including tapes and adhesives narrowed its revenue and profit forecast for this year.

Deerfield, Ill.-based Caterpillar said sales of its bulldozers, mining trucks and other equipment jumped 31% in the first quarter thanks to strong global construction and mining activity. Revenue, $12.9 billion in the quarter, also benefited from a stronger euro and Chinese yuan.

"The strength in the global economy as well as favorable pricing for most commodities is benefiting many of our end-markets," said Chief Financial Officer Brad Halverson.

But some of those gains were offset by higher manufacturing costs, executives said. U.S. manufacturers said their steel costs have risen since the Trump administration moved in recent weeks to place duties on imports from many foreign countries.

3M Chief Financial Officer Nicholas Gangestad said the St. Paul, Minn., manufacturer also has been facing higher transportation and material costs as oil prices have risen. "We are seeing some increases in raw material prices, in fact, more than what we originally estimated," he said.

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

Caterpillar also 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.

Caterpillar's suggestion about headwinds for the rest of the year spooked investors. "It got everybody spooked," Stifel analyst Stanley Elliott said.

Still, Caterpillar boosted its profit 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.

Executives declined to detail the company's plans for potential future acquisitions or share repurchases.

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 the company 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.

The year-prior results were dented by $723 million in restructuring costs primarily related to a facility closure. 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.

Imani Moise and Bob Tita contributed to this article.

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

(END) Dow Jones Newswires

April 24, 2018 16:45 ET (20:45 GMT)

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